Dexus Property Group Stapled Security Stock

Thank you for standing by, and welcome to the Dexus FY '26 Results Briefing. [Operator Instructions]

I would now like to hand the conference over to Ross G. Vernet, Group CEO and Managing Director. Please go ahead.

Well, good morning, everyone. We really appreciate you taking the time to dial in this morning. I know it's a really busy day with other companies reporting, and there's probably a few tight analysts given it's been a busy reporting week. Let's begin today by acknowledging the traditional custodians of the lands and waterways on which we operate and pay our respects to Elders past and present.

Today, you'll hear from some of the management team who will provide you with a full picture of the business and the operating environment. You'll hear from Keir, our CFO, on the financials; Andy on office, Chris on industrial and Michael on funds management. At the conclusion, I'll provide a summary and outlook, and then we'll open up for some questions.

We know -- Dexus today, it's a good business. Now you may see Dexus as an opportunity to buy high-quality assets cheaply. And in the short term, we're looking to capitalize on that ourselves. But Dexus has all the ingredients to be so much more than that and unlocking that potential is what we're all about. We have a diverse platform with deep sector expertise and the ability to create assets. We have long-term and deep relationships with private capital, and we have a balance sheet of serious scale with high-quality assets.

Over the past few years, Dexus has been making a deliberate transition. We've been reshaping our portfolio, improving its quality, becoming more capital efficient and building a more diversified business, all with a very clear ambition to create a more resilient business that can generate sustainable earnings growth over time. Today's results show that we've delivered on what we said we would in FY '26, and we continue to make progress on our transition. But I also want to be clear about where we are today and open about the work we have to do.

While we have a high-quality investment portfolio, we have further to go in transitioning the balance sheet to be more diversified and more capital efficient. That will improve our ability to generate attractive and sustainable returns for security holders through the cycle. We have a funds management business of scale and significant relationships with clients, but there's work to do to ensure the strategies and products continue to be relevant and deliver for clients and for us. Specific issues have emerged in the infrastructure funds and mandates that transition to Dexus from AMP, and we're addressing these directly. Our portfolio and deep relationships have created a privileged position when it comes to deal flow, but investing in this market has become more asset specific, and we need to be very selective about the opportunities we go after as we deploy capital alongside third-party clients. This is all reflected in a security price that materially understates the value of the underlying investments and value in the platform. And the management team and I are acutely aware of this disconnect, and we are focused on improving it in a sustainable and enduring way. So the question I know you'll be asking is, what are we doing about it? And the answer is, in short, a lot.

As detailed on this slide, in FY '26, we delivered solid outcomes in our core business. We delivered on divestment targets. We secured attractive capital growth opportunities. We substantially resolved redemptions across the core real estate platform, and we raised capital from clients, twice as much as last year. We're driving hard on the performance of our own investment portfolio, improving occupancy, income and returns from the assets we already own. And we continue to focus on meeting the needs of our fund clients, delivering performance in those strategies and ensuring we bring new opportunities that create long-term value. It shows the resilience in our operating model, the ability to deliver this performance while navigating the challenges in infrastructure.

We're also putting down the foundations for longer-term growth with initiatives like the Boral JV, a more than decade-long project, which we expect will create the nation's largest logistics precinct. And we're being responsible in how we think about costs and overheads to run the business. And the team will share more on progress and highlights in a moment.

12 months ago, we set out a series of priorities and action items that will move us towards our goal to reshape the business to deliver more sustainable earnings growth over the longer term. And as you can see on this slide, we've made decent progress. Atlassian Central topped out last month and is on track to complete this year. Our other major project, Waterfront, is experiencing further delays but remains favorably positioned in the country's strongest workplace market, and the commerce remains intact. We've had success attracting capital to products we've created that leverage our capabilities with DREP2 exceeding its original target by nearly $300 million. The conversion of a Brisbane office to student accommodation asset in DREP that reached PC in June is a good example of what the platform can create.

And people are such an important part of our platform. The execution of strategy, the creation of value, the management of risk, the connection with customers, clients, partners, all of this relies on people. We have a great team of passionate experts who thrive in creating and driving value from assets, and we continue to invest in them, strengthening the leadership, the skills and the capabilities in the platform. We also continue to actively address fund-specific issues. This includes responding directly to the APAC matter, continuing to support our fund investors and ensuring that we embed learnings into the wider business. I'd like to spend a moment on this before I hand over to Kier.

This slide sets out the context, the actions we've taken and the next steps. And there's a few things I want to make sure are really clear. Dexus primarily acts in a fiduciary capacity in these funds. We don't have a direct ownership or control of the underlying assets. Our job is to act in the best interest of investors, our clients, and that's what we're doing. In May, the New South Wales Supreme Court found against the Dexus block in proceedings in relation to APAC, and the investors are appealing that decision with the court date scheduled in October. Managing this well for our clients is critical, and we take it seriously. Pleasingly, our operating model, which is designed around the sectors, and this ensures that we have teams focused on delivering in each part of our business. This is evident in the positive outcomes this year we've achieved across the wider platform.

I can understand some of the frustration from security holders regarding the uncertainty. Fund-specific decisions will be made by RE Boards and trustees. Legal processes have a timeline of their own, and some conclusions won't be possible until the appealed outcome is known. These are complex matters, and it will take time to resolve, and we will update you as security holders as decisions are reached.

I'll now hand you over to Kier, our CFO.

Thanks, Ross, and good morning, everyone. Turning to the results in detail. In line with expectations, total AFFO was $484 million, with a distribution of $0.37 per security, reflecting a payout ratio of 82%. Office FFO reduced primarily due to divestments and lower average income-producing occupancy, while industrial FFO increased driven by development completions, higher average physical occupancy and strong re-leasing spreads, partly offset by divestments. Co-investments in pooled funds increased, driven by Dexus' investments in DSIT1 and DWSF as well as higher distributions received from some funds. As expected, FFO from management operations decreased due to lower FUM as a result of divestments, lower management fees and slightly lower performance fees. while active cost management reduced group corporate costs by 6%. Taken together, group corporate and management operation costs have now reduced by more than $30 million since FY '24, with the impact of recent initiatives expected to benefit FY '27.

Finance costs increased due to a higher weighted average cost of debt, partly offset by the impact of divestments. As expected, trading profits were higher with the sale of Brook Hollow, Chester Hill and completion of construction at Prestons. And maintenance CapEx and leasing decreased for the office portfolio as a result of timing, partially offset by higher incentives across the industrial portfolio.

The recovery in property valuations is increasingly being driven by fundamentals, with market rent growth the main contributor this year, partly offset by a marginal expansion in capitalization rates. Overall, for the 12 months to 30 June, the portfolio increased by 1%. Our office portfolio, which is 95% prime grade and 78% weighted to core CBD markets increased by 0.6%. And our industrial portfolio, which is 89% weighted to core industrial estates and distribution centers, increased by 2.3%. These outcomes demonstrate the quality of the portfolio and stabilizing valuations despite the interest rate environment.

Moving to capital management. Our balance sheet remains solid with look-through gearing of 33.4%, which is expected to reduce by around 1.5 percentage points following recently announced divestments, net of circa $490 million of committed development spend over the next 12 months. This provides support to recommence buyback activity. We have been active with refinancing, resulting in a weighted average debt maturity of 4.2 years, $2.5 billion of headroom and manageable near-term debt maturities. 91% of our debt was hedged during the year at an average hedge rate of 3%, providing material interest rate protection.

Thank you. And I'll now hand over to Andy.

Thanks, Kier, and good morning, everyone. I'll take you through the office results. We own the best office portfolio in Australia, 95% prime grade and 78% in core CBDs, up from 88% and 61% 7 years ago. Occupancy improved significantly this year from 92.3% a year ago to 95.7%, our strongest result since June '23 and remains well above market average. The improvement was driven by a combination of leasing success on vacant space and divestments secured post 30 June. Our leasing volumes of 172,000 square meters were 60% higher than the prior year. Incentives were 26.4%, held down by effective deals in Melbourne. And excluding those, incentives were 29.9%, still well below market.

Effective like-for-like income grew 30 basis points, impacted by downtime on key vacancies at 80 Collins and 30 Hickson Road, however, improving since the half year as we had targeted. The portfolio delivered a 1-year total return of 5.4%. We are working to address the capital intensity of office ownership, pushing for lower lease incentives, effective rent structures and investing in fit-outs that endure beyond a single lease term. These initiatives compound over time and will improve free cash flow.

We aim to hold any single year of expiries below 13% of the portfolio. FY '27 expiries stood at 12.1% at 30 June, excluding those, excluding car parks and the leasing that we have secured since the year-end, that reduces to 8.5%. The vacancy we're most focused on is 80 Collins Street in Melbourne, which represents 1.2% of portfolio income. There are also upcoming expiries at Australia Square and 25 Martin Place, where we will pursue leasing across a combination of suites and turnkey whole floors.

We expect an improvement in like-for-like growth in FY '27. Further out, FY '30 and FY '31 sit above the threshold today, driven by concentrations at 80 Collins Street and 240 St Georges Terrace, expiries we have a long runway to manage. Our portfolio is well diversified and is weighted to financial, insurance and legal services, high-value professional work concentrated in premium CBD buildings. That is the work we think is most resilient to AI and in parts may benefit from it.

Two city-shaping developments that will further enhance the portfolio quality are underway. Atlassian Central is on schedule for practical completion in late '26, 100% pre-leased for 15 years with fixed 4% annual increases. As flagged at the half year, completion of Waterfront Brisbane has been delayed. The expected completion of late 2029 is based on the contractor's current program with greater certainty expected once construction passes Level 5 later this financial year. Dexus' share of total cost has increased primarily due to interest costs and leasing incentives. While we have a fixed price construction contract and earlier delays are expected to be absorbed within the relevant contractual provisions, a delay of this length goes beyond that capacity, impacting our cost to complete.

We remain confident in the asset, 71% pre-leased, rents around 50% below market in the country's strongest office market. The project remains profitable, yield on cost remains materially in line and known valuation impacts are reflected in carrying values and NTA.

The office market has commenced a recovery cycle, supported by a very favorable supply backdrop. Completions across the major CBDs will remain well below long-run averages for an extended period with development economics challenged by higher construction costs. Demand is harder to predict, but the supply outlook is clear and supportive of stronger rental growth. Performance remains hyper local. As the chart shows, Sydney core premium assets have materially outperformed the broader market and are one of the few segments where net effective rents are above pre-pandemic levels. Dexus is positioned exactly where the market is strongest, 95% prime grade, 78% in core CBD precincts.

Thank you, and I'll now hand you over to Chris.

Thanks, Andy, and good morning, everyone. We leased nearly 0.5 million square meters this year across stabilized and development, our second largest year on record. Our industrial portfolio has delivered a strong result, including a 1-year total return of 7%. Occupancy by income reduced slightly to 94.6%, impacted by expiries at select assets with relatively high rents, partly offset by lease-up of other vacancies. Occupancy by area of 96.5% remains above the national average. We achieved strong re-leasing spreads of 24%. Average incentives increased to 21%. This is supply-driven and location-specific.

Recent completions in select submarkets have given tenants more choice. It's not a signal of broader demand softening. Underlying reversion is unchanged. The portfolio remains 8.1% under-rented with 20% accessing reversion by FY '28. We leased 128,000 square meters across 23 development deals and 68% of the committed book is now pre-leased with fixed annual increases of 3% to 3.5%. Every completion expands the quality end of the portfolio and captures tenants trading up. A portfolio built for the market we're now in, returns driven by rental growth, reversion and development, not cap rate tailwinds.

Moving to our expiry profile. We have leased 32% of the portfolio over the past 24 months, derisking the expiry profile and capturing strong re-leasing spreads. We remain focused on leasing key vacancies at Matraville, Lakes Business Park, and Greystanes, and we're in active discussions with potential tenants on these properties. The vacancy we absorbed was older stock in New South Wales and Victoria, and we leased it well. The market is splitting quality, well-located assets stay in demand while secondary stock is discounted, and our portfolio sits on the right side of that line. 80% of FY '27 expiries sit in younger prime assets, so our upside is exactly where the market is strongest.

On development, we're actively growing and upgrading the portfolio over 208,000 square meters in play this year, 154,000 completed and a further 54,000 under construction. This is new, prime, high-performing stock, modern facilities meeting the specifications occupiers are demanding as they move out of older buildings into better, more efficient space.

Supply is in check, around 60% less speculative supply over the next 3 years, and the market has slowed building on spec. Developers now precommit before they start, so little new vacancy is being added. As existing vacancy is absorbed, the setup points one way -- tightening availability, returning rent growth and easing incentives.

Data centers are accelerating and are now a structural tailwind, close to 290 hectares taken up across Sydney and Melbourne, a new higher and better use for power served industrial land. That lifts land values and replacement costs. That supports the value of our existing modern stock. We're leaning to modern logistics in the best locations and stepping back from the secondary stock the market is discounting.

Thank you. I'll now hand over to Michael.

Thanks, Chris, and good morning, everyone. Our funds business manages $36 billion in third-party capital across a diverse range of real asset strategies, servicing 150 institutional investors along with direct and wholesale clients. The platform is diverse across channel, sector and risk profile, and it brings together products we have managed for a long time like DWPS, strategies we have built organically like DREP, large joint ventures and products that came to us through platform acquisitions like AMP and APN.

Funds Management is a competitive business, and we are not here simply to promote products and collect fees. We invest alongside our clients, focusing on 3 things: Investments must generate attractive returns in areas we have a competitive advantage. Clients need to support the product and the fee economics need to be fair, delivering a positive financial contribution. That is the lens we apply to both new and existing products. And Dexus has been in business for 40 years, and there will be a need to refresh and renew funds from time to time. For example, our health care fund has not achieved the scale or performance we had hoped for when it was launched almost 10 years ago. And as mentioned earlier, following the unfavorable APAC judgment, we formalized a review of the infrastructure products and strategies acquired as part of the AMP acquisition. That review builds on work already underway to resolve some fund-specific issues. Dexus holds a modest co-investment in these strategies around $260 million. So the reviews are focused on ensuring these funds have contemporary strategies that align with client needs and our capability to deliver.

Turning to our achievements for the year. We raised $2 billion in equity across the platform, including $260 million in the last 2 months of the year, while also providing liquidity to investors. DWPF's redemption queue, which stood at $1.7 billion at the start of the year has been completely resolved post year-end. We have also maintained our focus on returns. DWSF was ranked first among all wholesale funds in the MSCI Index over the 1-, 2- and 3-year periods. And DWPF continues to outperform its benchmark across all time periods, achieving a 1-year return of 9.3%. The performance of these funds highlights the quality of the underlying portfolios and our active management approach. And with structural fee pressures across the market, strong performance does support fee retention.

Finally, we continue to deliver on our ESG ambitions across the platform. Three funds achieved 5-star GRESB ratings, and we maintained net zero emissions across Scope 1 and 2 for our managed portfolio.

Thank you. I'll now hand you back to Ross.

Well, thanks, Michael. I know our clients have a lot of confidence in your focus on the fund strategies and how you're evolving the product set. Now we've covered a lot today, and there's lots of moving parts. So let's turn to the priorities for the year ahead. Our commitment to transition the balance -- the business, remains the same and the priorities to get us there have been refined. We've been deliberate about where and how we allocate capital, we remain invested and importantly, where we don't. We are targeting to release more than $2 billion of capital over the next 2 years by introducing third-party capital into our core long-term holdings and continued pruning of the portfolio.

Capital deployment will focus on opportunities that support us being more capital efficient, more diversified and ultimately generating more sustainable earnings growth. Examples of these type of opportunities include the Boral joint venture and a modest investment we've made in an Australian data center operator, ADC. I expect the buyback will continue to feature as an attractive use of capital. We have deep belief in the value of the business and see this as a lever to generate value for security holders as we navigate our transition. With transaction markets improving and our divestment target exceeded, we are now in a position to capitalize on the current disconnect. But to be clear, the buyback does not replace our long-term growth strategy. It is a near-term lever to create value for security holders.

So, in summary, it has been a year with both challenges and evidence of real progress. We are focused and clear-eyed about addressing the headwinds and have a solid plan and a team in place to execute. We have met commitments to security holders, but we know we have more work to do, and FY '27 will be a critical year for us. And while the core portfolio is expected to benefit from leasing momentum, earnings in FY '27 will be lower. This is driven by minimal contribution from performance fees, trading profits, higher financing costs and the practical completion of Atlassian. We've also made some allowances for materially lower earnings contribution from the funds under review and consultation.

As a result and barring unforeseen circumstances for the 12 months ended 30 June 2027, we expect AFFO of $0.375 to $0.395 per security and distributions in line with last year at $0.37 per security.

As we think about the year ahead, every decision, every action is taken through a lens of creating sustained value for our security holders. Some of those actions will have an impact relatively quickly and others will take time. But they are all moving Dexus towards being a more diversified, more capital-efficient business capable of delivering sustainable growth over time. And I have real conviction in that direction. We have high-quality assets. We have valuable capabilities and relationships that have been built over many years, and I have enormous confidence in the team across Dexus, who are doing the hard work to make this transition happen. And while the year ahead will have some challenges, I'm generally optimistic about what we can achieve, and I thank our security holders, our clients, our customers and our partners for their support and the Dexus team for their dedication and focus.

That ends the formal part of today's presentation. We'll now open up to any questions. Thank you.

[Operator Instructions] The first question today comes from Adam West from JPMorgan.

My first one today is just on the ongoing APAC matter. But I'm just wondering if you're able to quantify how we should be thinking about the scale or quantum potentially if the shareholders were to take legal action against yourself and whether or not your provision that you've got in there for NTA covers just the current cost of the appeal or also if you were to lose that appeal and had to cover the cost of the upside?

Thanks for the question, Adam. Look, I understand that there is going to be lots of questions around APAC. But obviously, this is a live and complex bit of litigation. So, there's not much I can add beyond what's in the materials in the prepared remarks. In specific -- answer your question around what is kind of cooked in NTA today, that essentially relates to legal costs both for our clients, but also legal costs for the other parties to the judgment to date. It doesn't kind of provision for -- it doesn't provision for any future claims. It does allow for some cost for us to get through the appeal on our side as well. So, there is nothing in NTA today or provisions made in the accounts today for subsequent claims. I would make the observation that no claims have been made. And to the extent that claims are made, that will be kind of -- that will probably happen or if it happens, it will take some time.

Yes. That's clear. I guess just on my second question, but just in terms of, I guess, the AI dynamic and just some of your conversations you might have been having with your tenants in terms of leasing, how do you see the use of space changing in the future? And do you think there's potentially a tailwind of people taking out more space for collaborative and breakout spaces?

Look, I think it's a fascinating question. Andy is in there talking with customers every day. So, I'd like to get him to share some views on that. But I think from my perspective, certainly, what we're seeing in our business is AI is definitely making the most productive people more productive. And that means that we're going to see people investing, I think, in high-quality space and the value and utility of those people actually becomes high moving forward. But Andy, what are you seeing when you're talking to... your customers?

For the most part, our customers are like us, investing in AI productivity tools and seeking to capture that performance gain. They are yet to see AI flow through to a reduction in headcount, that type of efficiency. It's more about productivity for them. And I think bear in mind, our average customer size is relatively small. It's 1,500 square meters for the balance sheet. So those types of small- to medium-sized enterprises are more likely to be using AI to grow than to contract. In terms of the -- how the space is used, I think whenever there's heightened uncertainty, tenants look for shorter lease terms and more flexibility. That's probably what we're seeing in Bris.

The next question comes from Andrew Dodds from Jefferies.

Maybe just a follow-up on some of the APAC legal fees. I think back in the first half, you quantified that amount at $17 million. So, I was just hoping where that number kind of sits today and I guess the outlook sort of going forward over the next 12 months of what this number could sort of potentially be?

Yes. Thanks for the question. So, in terms of the costs, both for the proceedings to date and as Ross mentioned, in respect of our costs for the appeal, those costs that can be more reliably estimated total approximately $60 million, and they've been expensed in the P&L and reflected in NTA. I don't think it's appropriate for Ross's comments to estimate what future costs will look like.

Okay. That's clear. And then maybe just one on the buyback, given your comments in the outlook statement. Ross and team, is the intention to restart the buyback tomorrow now once you're out of blackout? And I guess just how sustainable do you see this just given where look-through gearing is at 33% and close to $1 billion of capital commitments over the next 2 years?

Look, the buyback is something that I'm very passionate about, and that is why it's in the plan. But as you'll appreciate, we are balancing the short term, and there is clearly kind of a short-term gain we had through the buyback through ensuring that we don't kind of start the business of capital for longer-term growth. So -- and when you do all of that while managing risk and you rightly identify the financial risk, I'm also thinking about the investment risk, so how we think about the investment portfolio. So, I guess in a nutshell, it's a balance. All these decisions are guided by our capital allocation framework, which we kind of put in place in 2024. But certainly, at current prices, I'm a buyer of the stock, and you should expect us to be active in coming weeks.

Okay. And just in terms of guidance and what guidance is factoring in, how much of the buyback are you assuming?

There's nothing material in guidance in terms of the buyback. It's not a material needle mover given where kind of cost of debt and the yield of the stock is. It will have benefits in future years as you kind of think about shrinking the capital base. And then when we get earnings growth moving, we're doing it off a smaller capital base. So, it's going to increase NTA, it will increase NAV per security. it will give us more positive leverage to growth as the business turns around. The other point I would make just on your earlier question around capacity for the buyback, I think we are thinking carefully about the balance sheet. We don't want to stretch it, but we have also announced that we're targeting to at least release at least $2 billion of capital over the next couple of years, and we have a good track record in terms of capital release. So, I kind of think certainly, at current prices, I think it would be a missed opportunity for us not to capitalize.

Right. And then just a final one for me. Just in terms of some of the moving parts in FY '27 guidance, I guess it's been pretty well flagged that performance fees and trading profits are kind of likely to feature less going forward or at least in '27. But it would just be good to understand some of the kind of bigger moving parts just given how deep the sort of year-on-year decline is?

Keir, do you want to?

Yes, happy to take that one. So, you're right. As we have flagged, we anticipate an immaterial contribution from trading profits and performance fees. Now those factors alone account for 14% of the lower earnings. Outside of that, there are a number of moving parts. So, we anticipate impacts from higher funding costs, practical completion of Atlassian. There's some slight dilution in there from disposals as well as some allowances for a materially lower contribution from FUM that's under review or consultation. And I think pleasingly, offsetting those headwinds, we're anticipating solid growth in the core portfolio, driven by leasing momentum, stronger office growth and continued industrial performance.

I think just kind of closing out on that, I think that's kind of something that maybe just doesn't jump out of the result is notwithstanding the headline print of earnings being lower next year, the underlying business is actually pretty much flat. And that's after we take into account higher funding costs and the full year impact of the Atlassian coming through. So, I think that's something to -- certainly us as a management team, but also brokers to be focused on.

The next question comes from Adam Calvetti from Bank of America.

Just on the office, do you provide a like-for-like number ex the divestments? I mean, you guys have, as Andy said, the best office portfolio in the market and you don't report leasing spreads and growth -- like-for-like growth of 0%. Like what's going on? When is this going to return to positive?

Adam, it's Andy. Is the question there what's like-for-like for '26 ex divestments?

Yes, ex what's settling in 30 Hickson Road, which I'm sure has dragged it down.

Yes. So, it would be about 2.5% as opposed to 30 basis points in FY...

And is there a reason why [ I'm not ] a leasing spreads?

So leasing spreads are improving, especially on an effective basis. And for the first time in a long time, we are now on an effective basis, under-rented in Sydney CBD and in Brisbane CBD. The effective spreads on the deals we did in FY '26 were negative 8.7%. So that's down from 10.2% at '25.

Okay. That's clear. And then just on the divestments as well, you've got a coupon that's going to be -- is that going to be coming through FFO?

Yes, it will be. That's right.

Okay. That's clear. And then just maybe one quick one as well. Just on this APAC litigation expense, I mean, with the FUM that's at risk, is that still fee paying currently? Is the full $7.3 million? Or how do we think about the $4.5 million fee paying? And is that expected to be fee paying throughout the year?

So yes, we're still providing services and collecting fees in relation to that FUM. As I said, I think the concluding remarks, we haven't had some allowances in guidance for a materially lower contribution from, let's call it, fund that is under review or consultation. We're not being specific as to what that is, but we need to make some assessments around what that is in determining guidance, and we've done that. So yes, we factored in on a reasonable basis what that looks like.

Okay. But it's fair to say that it's contingent on the actual decisions at court. So, if that's delayed, you could see them paying -- you see that fee -- that fund paying fees for all of FY '27?

I would separate the litigation outcomes from the reviews that we're going through with fund clients and trustees.

Right. So you're doing reviews on the full $7.3 million regardless?

Correct.

The next question comes from David Pobucky from Macquarie Group.

Just another one on the infrastructure strategic review. How should we think about the timing of the progress you make there? And I mean, at what point would you have made material progress? And maybe at a high level, what would success look like to you and Dexus security holders off the back of the review?

Thanks, David. In terms of timing, we just flagged that this is a process that we're working through with clients, trustees and investors. And so, it's not for Dexus to dictate the timetable per se. I think there is a shared interest in trying to get resolution, but I think there's a general acknowledgment amongst all the stakeholders that is a very complex situation, and we also have to navigate, as I said in some of the remarks, the conclusion of the litigation is probably going to impact some of the decisions as well. So, I think we collectively, as a stakeholder group, would like to get clarity as soon as practical. It will take some time. We're not going to be -- and we are not, Dexus, going to dictate the timetable. I think we're very respectful of all the stakeholders in relation to that.

What does success look like? I think in the end for us, it's not that complicated. We want to have strategies that we think can deliver attractive returns. We want to have strategies and products that our clients are going to support us in. And ultimately, the economics need to be a positive contribution for us given the complexity and the loss of control that you have when we're investing alongside clients. So, I think that's the framework that we're looking about. I accept that this is a difficult situation, we have stakeholders and clients with differential interest, but that's how we're working through it in a methodical and considered way.

And just the second question. You mentioned you're targeting the release of $2 billion of capital over FY '27 to '28. A few months ago, there was an article in the press that mentioned Dexus was trying to put together an office fund that might include stakes in some of your top buildings. So, if you could provide any comment on those kind of a couple of pieces.

It's always dangerous to comment on press speculation. Look, we see a great opportunity to improve the returns for Dexus security holders and the capital efficiency of the business by bringing third-party capital into that very high-quality office portfolio. But I would say the same principle applies as we think about our logistics assets as well. So improved capital efficiency is a clear objective. We've got to get the timing of that right. We've got to make sure we get the right partners in. We're not under pressure to do a deal tomorrow, if that makes sense, but the balance sheet is in a really good position. So, for us, we'll work through it, again, in a methodical considered way. I think pleasingly, institutional capital interest in office has come back a long way. 12 months ago, it was hard. I think there is a general acceptance around the better assets are really going to perform well. Andy has given you some good color around I think the supply-demand dynamics have really favorable setups, and I think that is acknowledged globally by investors. So, we're working through that. We'll update the market as we make meaningful progress. And as I think I flagged at the Macquarie Conference earlier this year, the scope for material capital release from these initiatives is significant and the challenge is going to be back down on the redeployment and the use of those proceeds.

The next question comes from Tom Bodor from Jarden.

I was just interested in whether you see FY '27 as a trough year for FFO? Or do you think there could be sort of some risk into '28 as well?

We only just delivered the '27 guidance, Tom, and you want us to talk about '28? Look, I think we're very clear around the business needs to be in a position where it has a sustainable earnings base and it's going to deliver sustainable earnings growth for security holders. I think we're very clear around the plan of what we need to do in '27. There's headwinds, there's tailwinds in relation to that. The team is focused on '27, all with the lens of getting the business back to sustainable earnings growth. And so, we'll be pleased to update the market on '28 probably this time next year.

And then on Waterfront and the delays, I think historically, when you've sort of answered questions around that, there's always been sort of a refrain of a fixed price contract and it's the builder's risk. But clearly, a fixed price contract isn't ever fully fixed because you sort of can't take all the risks that could play out. And it seems that weather contingencies have been [indiscernible] through. Does that mean that you're now on the hook for any excessive weather delay from here? And what other risks are you exposed to in that contract?

Look, developments involve managing risk, absolutely, and we are laser-focused on this as a team. And I think while there has been delay and there will be some costs, and these are principally financing costs, as Andy alluded to, there really isn't a better project in the country to be invested in, certainly in the office space. And I'll let Andy provide some specific comments on the contract particulars. But for me, this is -- we picked the right market. This is the right product in the right location, a premium asset in a premium location. We've had the right leasing strategy. We didn't lever it up too quickly. Notwithstanding views around John Holland, I think we have the right procurement strategy. This is a Tier 1 builder with deep expertise and financial support, and they are very well equipped to deal with a build of this complexity. And notwithstanding the delays, and we do want to get this built as quickly as possible, the economics have been largely preserved. And so, I think that's the important thing for us. I think you're right to identify, well, if there is further delays from this point, what does that look like, but I'll let Andy touch on that.

Thanks, Ross. Tom, so the fixed price contract remains intact, and it protects Dexus and DWPF from escalation in construction costs. It also anticipates a regime for liquidated damages in the event of delays to practical completion. And the previously announced delays have been absorbed within that capacity in the contract. This delay to late 2029 is frustrating, but we have been working closely with John Hollands to review the program. It does include and resets an appropriate contingency for weather from this point on. And we'll feel much higher conviction about forecasting PC once we get to Level 5, which will be later this financial year. And at that point, it should be much clearer.

The next question comes from Howard Penny from Citi.

Just a question on finance costs and how to think about the sources of funds over the next 2 years. There is 1 or 2 -- there's some potential to renew funding, but also the exchangeable notes that's coming up in November 2027. Could you just guide us on how you see sources of funding and just overall funding costs over the next year or 2?

Sure. I might take that one. Thanks, Howard. So maybe if we start with gearing, gearing at 30 June was 33.4%. That's towards the lower end of the range. If we pro forma for the post balance date divestments that the team has achieved, pro forma gearing sits at around 30%. That's just with the initial proceeds from those sales. And then it steps up to around about 32% if you look at the $0.5 billion of committed DevEx over the course of FY '27. Now things that might occur outside of that, Ross has talked to the $2 billion of capital release over FY '27 and '28, that will further benefit gearing. Naturally, there are also things that we are looking to spend on, including the buyback as well as potential other investments. So, it's difficult to give you a forward estimate, but hopefully, that helps with some of the moving parts.

If we're looking at cost of funding itself, look, the team has done a great job in terms of the hedge book. We have quite high hedge coverage. The average rate is around about 3%. As that rolls off, it will normalize to higher rates. And you are right, the exchangeable note that expires towards the end of FY '27. It's too early to say what we will do with that particular instrument, but you should assume at the moment that it will be in place until maturity.

And just a second question coming back to thinking about the core portfolio. That portfolio has done well and remains strong. And just thinking about how Dexus is allocating that next dollar. There's a few opportunities, it seems at hand, both taking opportunities, maybe liquidity in the funds, the share buyback and reinvesting into developments and the core portfolio. How are you thinking about allocating that next dollar of Dexus across those opportunities?

Howard, the way we think about capital allocation is not about the next dollar, it's actually about thinking about the returns on the assets we already own. So, it's both, and that is also driving some of the decisions around divestments. So, I think we see opportunity to sell assets where kind of the go-forward returns are going to not meet our hurdles or returns relative to the redeployment opportunities. So, I think you should expect us to continue to be active. There is no shortage of opportunities out there at the moment quite genuinely. I think the challenge for our team is given where the buyback is at, the bar is very high. So, it doesn't mean that we're not going to do new things. It means that the -- yes, as I said, the bar is high in terms of doing new and different things. And if you look at actually where we have deployed capital, we haven't committed that marginal capital over the last year. It has been on things that generally have high returns and adding to diversification and ideally capital efficiency in the business. So, there's certainly going to be characteristics of any of the new things that we do.

The next question comes from James Druce from CLSA.

Yes. I think part of the question might have just been answered, but just what you'd like to do with that $2 billion of capital that will be released over the next couple of years, is there any other color you can add?

I'd probably just be saying the same thing. You can have another extra question, if you want to.

Yes, yes. So, we -- just on the maintenance CapEx and leasing CapEx for '27, is that heading up or down? Or what is that number?

Thanks for the question. So, I'd expect it will be a little bit lower than what we delivered in FY '26. And that's a combination of the office portfolio being smaller as well as the work that the team has been doing in terms of managing CapEx and the way in which we do that. That's slightly offset by an increasing contribution from industrial as a consequence of higher incentives and flowing through the book.

Has that peaked given that what you're doing with the portfolio now? I mean it should be trending down [indiscernible] I would have thought.

Yes, I think that's fair. And maybe, Andy, you can talk to certainly office markets where that's the expectation.

I think the short answer is we expect cash incentives as TI, AFFO CapEx to continue to gradually reduce. What you see in the number will be a reflection of the composition of leasing. And so, we're able to really drive incentives down in the markets that allow us to, Sydney prime, Brisbane. Incentives are sticky in Melbourne and in Perth. If you look at our FY '28 expiries, we've got half of them in Sydney prime. So, we hope -- we expect to do well there. On the maintenance CapEx and lessors work line, the timing of those works happens when the space becomes available and the TI flows when the space is leased. That's probably how I would suggest you look at that. And we're trying to be really disciplined in how we allocate that capital, make sure we create a product that leases well, but we are capturing the benefits of scale.

Okay. That's clear. And one more, if I may. Just on Atlassian, is that in the bucket to be -- capital to be released? And what cap rate are you holding that asset at now?

So that's -- I think when we started that project, we said there's 2 times to monetize this asset. It's going to be before we start and when we complete, and we kind of, to be frank, missed the boat, unfortunately. So yes, as we get to completion, that will be one of the assets as much from a -- to be frank, portfolio concentration risk as anything else. So that's a levered structure. The financing is being put in place at the moment. So it reaches PC end of the year, and that is something that would be -- ideally, we'd be bringing some third-party capital in. Given it's a levered structure, it's not a huge check to raise. It's in the books. I think it's [ 5.375% ] is the cap rate, 15-year fixed 4% leases, clean cash flows. A lot is probably going to depend on where bonds are trading at the end of the year as to what that capital raise looks like.

Okay. And how levered is that on the project -- sorry, on the asset finance side?

About 65%. I think it's actually good support from the financiers on that. So yes, I think that bodes well for the project.

The next question comes from Lauren Berry from Morgan Stanley.

Just got a couple of questions. The office expiries in FY '27, I think about 8.5%. Can you give us some insights as to the retention rate you're expecting across that portfolio, please?

Simon, it's Andy. Look, we don't -- retention is one of those statistics that we don't focus too much on. And the outcome of retention is printed ultimately in occupancy and leasing volumes. In FY '28, we have some expiries, some known exits from the portfolio. And so there's a known exit in Australia Square and then a known exit in 385 Bourke Street. Otherwise, I think retention in the year gone by was more than 50%.

No, I mean I was asked -- I guess with retention, I was more worried about downtime, et cetera, right, if you've got existing tenants leaving and it could take several months for you to backfill it. So, is that going to create a drag in '27? But by the sounds of your answer, that's going to be a nonissue?

Well, if you look at -- well, look, it's all asset-specific. But if you look at 2 large exits we had from the portfolio last year, we were able to backfill them within 12 months. So, one at 80 Collins Street South and at 25 Martin Place, 2 deals about 3,000 and about 5,000 square meters.

Okay. So, the bulk of the 8.5% expiring, you're pretty comfortable with in terms of being tenanted over the course of the year?

So, the 8.5% is -- the lease expires in '28 that as at today, we haven't dealt with. So, we are in active discussions. We know that we've got some work to do at 385 Bourke Street. Melbourne is a slow market to move, and so that might not be solved by the end of FY '27, but it shouldn't be too far from that.

I think perhaps just to add to that, I mean FY '26 was impacted by some downtime, particularly at 30 The Bond. I think what is pleasing in terms of our expectations is we're expecting more normalized growth in '27, just given the leasing momentum to date as well as higher average physical occupancy.

Great. My next question, I'm just interested, you know about the Waterfront delay up in Brisbane. What does that mean for the tenants who had signed up to move in? Are you on the hook to help them out in terms of helping them extend their existing lease? Or were there flexibilities in the deal that they signed with you guys?

So, we're working closely with our precommitment tenants, Simon, at the moment to mitigate the impact of this delay on their own space requirements. So, 3 of the 8 precommitment tenants are within our control at 1 Eagle Street, and we're working closely with everyone to help mitigate that impact. I think the risk to precommitment leasing is relatively low given where the market has moved on an effective rent basis and given that the project is 50% under-rented. But that's not something that we're taking for granted.

The next question comes from [ Claire McHugh ] from [ Green Street ].

Just quickly on capital rotation. You've been selling assets in Brisbane. Is that simply a function of liquidity being stronger in those markets? Or is there something specific about the return profile of those assets that make the disposals the right call despite the market's compelling outlook?

Thanks, Claire. It's -- don't read too much into it beyond we underwrite the assets. We look at the go-forward return. We look at the clearing price, the return at the clearing price and the alternative use of capital. And then we look at the portfolio construction impacts. And we have -- we're building our exposure in Brisbane through the Waterfront precinct. That is going to be the best product in town, I think, for some time. And all the trends that we see actually support strong investment performance from those sorts of assets. So, it's -- that's kind of the model that we approach it in. And clearly, we've got better use for proceeds and assets' going to give us, let's call it, more average type returns.

Okay. And then in terms of the targets, just as a follow-on, in terms of the targets for future disposals, there's been obviously a little bit of discussion. But are you looking at -- just given the comments you've made around AI things and so forth, are you really looking to target some of those perhaps on the risk spectrum, more at-risk assets as you look to refine the portfolio? Or will it continue to be opportunistic and commensurate with where you're seeing better liquidity?

There's a consistent and strong rigor that we apply as we kind of think about this analysis. I think the quality problem that we have, to be frank, is that the portfolio is of such high quality at the moment that, let's call it, the bottom 10% is typically better than the kind of the average of the top quartile for some competitors. So, I think we're kind of splitting here to some extent if we're kind of talking about quality. We have got principally out of the suburban markets. I think we've got like 2 assets left, which we're in joint ventures, which we would like to exit. But again, it's at what price? So yes, I think kind of -- it's just going to be driven by the numbers.

Yes. No problem. And then maybe just lastly, just on the secondary units, can you just give us a sense across the sectors where they traded versus their own NAVs or NTAs?

Sure, Claire. For DWPF, for example, the flagship fund, part of the redemption facility has a baked-in discount of 2%, and that's where the most recent transactions have happened. Predominantly, other redemptions have been through liquidity mechanisms. So, they weren't traded. But I would say, in summary, this year, we've seen the discounts pretty much disappear.

The next question comes from Yingqi Tan from Morningstar.

Just a very quick one for me. Just can we just talk about the uncommitted pipeline? I was looking at 60 Collins Street, your yield on cost has increased to 6% to 7%, and it was 5% to 6% a year ago. And we know that the Melbourne office market isn't improving just yet. I'm just curious as to what has changed in the past year?

Yingqi, it's Andy. I'll grab that one. So, thanks for pointing that out. 60 Collins Street sits in our sort of predevelopment classification, which affords us the opportunity to iterate with the development scheme and the development feasibility. You'll see that the area and the project cost has also changed. And so, this smaller scheme, we think, delivers more potential for better risk-adjusted returns for a prospective capital partner.

And I would just reiterate earlier comments around capital allocation, but there is a very high bar for us to commit incremental capital to things that includes development assets that haven't been otherwise committed.

At this time, we're showing no further questions. I'll hand the conference back to Ross for closing remarks.

Look, thank you, everyone. I know it is a really busy day. We look forward to catching up over the coming weeks. Thanks for your time.

Thank you for standing by, and welcome to the DEXUS HY '26 Results Briefing. [Operator Instructions] There will be a presentation followed by a question-and-answer session.

I would now like to hand the conference over to Ross Du Vernet, Group CEO and Managing Director. Please go ahead.

Well, good morning, everyone, and thanks for joining us for our half year 2026 results presentation. I'd like to begin today by acknowledging the traditional custodians of the lands and waterways upon which we operate and pay our respects to elders past and present.

Today, you'll hear from Keir on the financials, Andy on office, Chris on Industrial and Michael on Funds Management. Concluding the presentation, I'll provide a summary and open up to any questions that you may have.

DEXUS is a unique investment proposition in the Australasian real asset market. Today, we manage $51 billion of assets across our platform with third-party funds under management at 2.4x our investment portfolio. We have scale and diversity across the real asset spectrum, $20 billion in office and around $10 billion in each industrial, retail and growth markets, which includes infrastructure, health care and alternatives. This scale is underpinned by our multidisciplinary team with deep expertise across each sector. Importantly, we have access to diverse pools of equity capital, which positions us well to capitalize on opportunities through the cycle.

Our strategy is unchanged and our vision to be globally recognized as Australasia's leading real asset manager continues to guide our decisions. The strategy targets large growing markets, leveraging our multi-sector strengths in transacting, managing and developing across each. Our high-quality balance sheet portfolio, together with a large diversified funds management business continues to differentiate us. Today, the investment portfolio is anchored by prime office exposure across Australia's major CBDs. Over time, the investment portfolio will continue to become more diversified by investing alongside capital partners into a diverse range of opportunities. Our culture, the quality and scale of the portfolio and projects we have underway, coupled with our approach to people, enable us to attract, retain and develop leading talent to ultimately create value for customers, clients and you, our investors.

Turning to our results. We delivered AFFO of $253 million and distributions per security of $0.193. This was the second consecutive six-month period of positive property portfolio valuations, which supported the delivery of a statutory net profit and an increase in NTA to $8.95 per security. Our office leasing volumes were almost double that of levels achieved in the prior corresponding half, including further progress at Waterfront in Brisbane, which is now 71% pre-leased and will deliver a premium product in the strong Brisbane office market.

Our industrial portfolio, as we expected, delivered strong like-for-like growth and re-leasing spreads. We undertook $800 million of divestments for the balance sheet, including the recently agreed divestment of 100 Mount Street in North Sydney. If we turn to the funds business, we continue to work through some fund-specific matters while positioning the business for long-term success. Our flagship funds continue to outperform, DWPF outperforming its benchmark across all time periods, while DWSF, the Shopping Center Fund has outperformed since joining the platform. We raised over $950 million of equity, comprised $640 million of new equity commitments and the facilitation of more than $280 million in secondary unit transactions. We established a new fund series. We closed DREP2 above its initial target, and we continue to rationalize subscale funds to simplify the platform.

In August, I outlined our action items for FY '26, aligned to our three strategic priority areas of transitioning the balance sheet, maximizing the contribution of the funds business and unlocking our deep sector expertise. In addition to the progress I mentioned on the previous slide, key development milestones were achieved at Waterfront in Brisbane. The DEXUS office and industrial portfolios delivered positive total returns over the 12-month period. And DEXUS has now secured $1.4 billion of divestments since 30 June 2024, progressing well towards our $2 billion target. We invested $170 million of seed capital into DSIT1, a new fund series, which we aim to reduce to $50 million during the year. We've reduced the real estate redemption queue by $1 billion. And post the APAC court date scheduled for April this year, we expect to make more progress on solving infrastructure redemptions.

Overall, we've made solid progress and remain focused on the priorities that will position the business for long-term success. Our sustainability strategy focuses on three priority areas where we can make the greatest impact across climate action, customer prosperity and enhancing communities. Sustainability remains core to how we operate, and we continue to receive global recognition for our performance.

Thank you, and I'll now pass you over to Keir.

Thanks, Ross, and good morning, everyone. Turning to the results in detail. In line with expectations, total AFFO was $253 million, with a distribution of $0.193 per security, reflecting a payout ratio of 82%. Office FFO reduced primarily due to divestments and lower average occupancy, partly offset by contracted rent increases. Industrial portfolio income increased due to higher occupancy, development completions and contracted rent increases, partly offset by divestments. FFO from management operations decreased due to lower FUM as a result of divestments and slightly lower performance fees, with $19 million realized in the first half and $16 million secured for the second half.

Finance costs were broadly flat with a higher cost of debt offset by higher interest income. As expected, trading profits were higher with the sale of Brookhollow, Chester Hill and continuing construction at Prestons, securing FY '26 guidance. Maintenance and leasing CapEx is skewed to the first half of the year, mainly due to the impact of incentives on deals secured in prior periods as well as the timing of maintenance CapEx. Looking ahead to FY '27, performance fees and trading profits are expected to be materially lower than FY '26.

It has been positive to see the second six-month period of valuation growth across the office and industrial portfolios. Overall, for the six months to 31 December, the portfolio increased by 1%. Capitalization rates have stabilized with the valuation movement predominantly driven by rental growth. Our office portfolio, which is 77% weighted to core CBD markets increased by 0.7% and our industrial portfolio, which is 90% weighted to core industrial estates and distribution centers increased by 1.6%. Pleasingly, these outcomes demonstrate the quality of the portfolio.

Moving to capital management. Our balance sheet remains solid with look-through gearing towards the lower end of the 30% to 40% target range, providing capacity to fund committed expenditure. During the half, we issued $500 million of subordinated notes at attractive rates and diversifying our funding sources. We have been active with refinancing, resulting in a weighted average debt maturity of 4.6 years, $2.5 billion of headroom and manageable near-term debt maturities. 95% of our debt was hedged during the half at an average rate of 2.9%, providing material interest rate protection. Looking forward, there's $1.2 billion of remaining spend on the committed development pipeline over the next four years, with $360 million expected to be incurred in the second half of FY '26.

Thank you, and I'll now hand over to Andy.

Thanks, Keir, and good morning, everyone. I'll now take you through the performance of our office portfolio. We continue to own and manage the best office portfolio in Australia. Over the past five years, we have enhanced the quality and resilience of our portfolio. And as a consequence, we are well positioned to benefit from the market recovery that is now underway. Location remains a key differentiator, demonstrated by our portfolio occupancy of 92.2%, which remains well above the market average.

Our average incentives of 29% are below market, reflecting the quality of our portfolio and notably, leasing deals done in Perth, Brisbane and North Sydney, where market incentives remain elevated. The effective like-for-like income decline of 2.3% primarily reflects downtime on select vacancies, including 80 Collins Street and 30 Hickson Road, and we expect this to improve into the full year.

Our leasing activity was strong this half with leasing volumes of over 95,000 square meters, almost double the volumes achieved in the prior corresponding period. The portfolio delivered a one-year total return of 5.7% at December, reflecting the improved market conditions.

Looking at our expiry profile, we aim to have no more than 13% of the portfolio expire in any single year. FY '27 expiries have improved to 12.3% following the recent divestment of 100 Mount Street with key expiries remaining in Australia Square and 385 Bourke Street. We remain focused on addressing the more challenging vacancies at 80 Collins Street in Melbourne, which represents 2.2% of portfolio income and 30 Hickson Road in Sydney's Western Corridor at 1.5% of income.

While there is no conclusive answer regarding the potential impact of AI on office markets, we believe different parts of the workforce are likely to be affected unevenly. Our view is that high-value professional work, the kind concentrated in premium CBD buildings, reflecting the majority of our portfolio will be the most resilient to AI replacement risk and may even benefit and grow.

We frequently monitor our customer base, which is well diversified with an average tenancy size of 1,000 square meters and our top 10 customers account for just 20% of our total property portfolio income. The staggered expiry profile, combined with our diversified tenant base, supports resilient income streams across the portfolio.

Our development pipeline provides the opportunity to further enhance portfolio quality. Construction is progressing at Atlassian Central in Sydney with completion on schedule for late 2026. This development is 100% pre-leased on a 15-year lease with 4% per annum fixed increases in what is now an improving Sydney market. At Waterfront Brisbane, we have achieved an important development milestone with the Riverwalk opening earlier this month and the vertical structure coming out of the ground. The Brisbane market continues to strengthen with a positive outlook over the medium term. Pleasingly, Waterfront is now 71% pre-leased with the recent leasing deal reflecting a 40% improvement in net effective rent compared to the previous Waterfront deal struck two years ago. In aggregate, 83% of the committed development book is pre-leased with contracted 3.7% average fixed increases per annum, providing a secure income stream once complete. We have fixed price contracts in place with Tier 1 contractors with material collateral and security arrangements to protect against construction risk. A very high threshold applies to projects in our uncommitted development pipeline and Central Place Sydney has moved out of our uncommitted pipeline as the scheme is reconsidered.

Turning to the office outlook. The evidence continues to suggest that we have passed the bottom of the cycle and are now in the early stages of a recovery. Office demand continues to gain momentum, driven by employment growth, return to work mandates and centralization trends. Net absorption has been positive across all four major CBDs with the strongest absorption in premium grade assets, which is exactly where our portfolio is positioned. Sublease space has continued to reduce and is now close to average levels. Importantly, upcoming office supply is low relative to long-term averages. This provides scope for vacancy rates to fall and rents to grow. Within our own portfolio, we are seeing examples of 15% net effective rent growth on comparable lease deals struck 12 months apart.

Looking at our rental growth expectations over the next three years, we expect strong growth across all major markets with Brisbane and Sydney Premium leading the way, followed by solid growth in Sydney A-grade, Melbourne Premium and Perth. The Sydney CBD core is now 95% occupied with DEXUS at 98%. With the seven-year delay in new supply, there is meaningful upside to the Sydney premium forecast. DEXUS is well positioned to capture this upswing given our portfolio quality and location in core precincts of the major CBDs.

Thank you. I'll now hand you over to Chris.

Thanks, Andy, and good morning, everyone. Our industrial portfolio has delivered a strong result, including a one-year total return of 8.8%. Occupancy by income increased to 97% following leasing success across Sydney, Melbourne and Perth, which also resulted in like-for-like income strengthening to 8.7% as expected. Occupancy by area of 97.5% remains above the national average. We achieved strong re-leasing spreads of 33% across the stabilized portfolio. Average incentives increased to 21.5%, primarily driven by lease-up of key expiries in Melbourne's West and Sydney's Outer West. The portfolio is 8.9% under-rented and 20% is set to access rental reversion upon expiry by FY '27.

On developments, we completed 102,000 square meters during the period, with construction continuing across a further 110,000 square meters. We leased 63,000 square meters across 10 development deals and 68% of our committed development book is now pre-leased with contracted annual increases of around 3%.

Moving to our expiry profile. We have leased 24% of the portfolio over the past 18 months, derisking the expiry profile and capturing strong re-leasing spreads. We remain focused on leasing key vacancies at Matraville, which has now been repositioned along with Gillman. And we are in active discussions with potential tenants on both of these properties. The vacancies we have experienced over the past 18 months have been in older stock in New South Wales and Victoria. And pleasingly, we have achieved strong re-leasing results. Looking forward, 80% of our FY '27 expiries are represented by younger prime assets and provide the opportunity for positive reversion.

Turning to the outlook. Supply under construction has moderated and remains at or below historic average take-up in all markets, while the picture for demand remains supported by strong Australian population growth, enhanced by e-commerce growth. Our portfolio with its focus on core industrial estates in strategic locations is well positioned to benefit from these trends.

Thank you. I'll now hand over to Michael.

Thanks, Chris, and good morning, everyone. Our funds business manages $36 billion in third-party capital across a diverse range of real asset strategies for more than 150 institutional clients with retail and wholesale investors. We've maintained prudent capital structures across our pooled funds with average gearing remaining conservative at around 32%. We have both returned capital and raised equity in existing and new products, but the near-term revenue impact of providing liquidity is still working its way through. While there is more to do, we are positioning ourselves to capture the strong expected growth in pension capital over the medium term.

Last year, we launched a new investment series focused on high-quality assets for long-term value creation, with the first fund in the series securing a 25% interest in Westfield Chermside. Offshore capital, particularly from Asia, is increasingly interested in Australian real estate with the office sector also seeing renewed interest. In the six months to December, we've reduced the real estate redemption queue by around $1 billion, and we continue to rationalize subscale funds. We expect to make further progress on infrastructure redemptions post the APAC court case scheduled for April 2026 with mediation to occur in March '26.

We raised over $950 million in third-party equity, including facilitating more than $280 million in secondary unit transactions. DWPF continues to outperform its benchmark across all time periods, outperforming by circa 200 basis points for the 12 months to 31 December. This highlights the quality of the underlying portfolio and our active management approach. And the shops fund has also outperformed its benchmark since joining the DEXUS platform. And while operating -- while the operating environment remains challenging with some continued pressure in the near term, we are steadily repositioning the business for long-term scalability and growth.

Thank you, and I'll now hand you back to Ross.

Thanks, Michael. Underlying real estate markets continue to improve, supported by positive business confidence, constrained supply pipelines, stabilization in asset prices and improvement in transaction volumes. Barring unforeseen circumstances for the 12 months ending 30 June 2026, we reaffirm our expectations for AFFO of $0.445 to $0.455 per security and distributions of $0.37 per security.

With valuations turning positive, transaction and fundraising markets recovering, our confidence in the long-term fundamentals of the business have strengthened. We are actively exploring opportunities to enhance returns and capital efficiency by increasing third-party capital participation in the $13 billion property portfolio. This would release capital in addition to the $2 billion divestment target. With the sustained disconnect between our equity market valuation and that of our underlying assets and businesses, we have activated an on-market securities buyback of up to 10% of DEXUS securities. We will execute the buyback at a pace consistent with maintaining balance sheet discipline as we progress asset sales and other initiatives to release capital.

Thank you. That ends the formal part of today's presentation. I'll now take any questions that you may have.

[Operator Instructions] The first question today comes from Adam West from JPMorgan.

I guess my first question today is just on the Atlassian development. I'm just wondering if you progressed any plans for a partial sell-down -- full sell-down of that asset?

Adam, thanks for your question. This is certainly an asset that we have flagged that we'll be looking to introduce third-party capital into. I think we've been pretty consistent with the market that we think the best time for that is closer to practical completion. That is slated for the end of the year. We think it's a great investment product, 15-year lease fixed 4% increases. And so yes, that's one of the assets that we will be bringing third-party capital in over the course of the year. It might not happen before practical completion, but it will be towards the end of the year.

And I guess just my second question on the office portfolio. In terms of the core Sydney CBD portfolio in particular, I'm just wondering if you could talk to how much under-renting would potentially be in that segment.

Andy, that's one for you.

Yes. No problem. Adam. So look, re-leasing spreads were positive in all of the CBDs, including Sydney CBD. And so re-leasing spreads obviously impact the extent to which the portfolio is over and under-rented. We're seeing a pattern of better effective re-leasing spreads driving or reducing the extent to which the portfolio is over-rented on an effective basis. And so the portfolio generally is around 7.5% over-rented on an effective basis. That's come in from 12.5% 12 months ago. And it's about 4.5% under-rented on a face basis, which is pretty stable with 12 months ago.

The next question comes from Cody Shield from UBS.

Just firstly, on the buyback. My understanding was that you need to do more than $2 billion of divestments to get the buyback away. Is that still the case? Or are you sticking with that $2 billion target?

I think we're very resolved around the $2 billion target. And I think what we're flagging is we see real value in the security price where it's trading. We instituted a pretty disciplined capital allocation framework when I stepped into the chair. Dare I say that has regard to the return on the investments we already have and also marginal uses of capital. So we are definitely resolved we're going to get through that $2 billion target. And as I have shared in my concluding remarks, we are actively looking at bringing third-party capital into the $13 billion investment portfolio. That has the potential to release a significant amount of capital. And certainly, given where we're trading today, the buyback would be a really good use of that.

Okay. That's clear. And then just turning to the leasing at Waterfront, looks like a good outcome. Just wondering whether there's some flex in that 5% to 6% yield on cost that you're targeting?

I think I've been pretty clear. I always kind of think we're going to be at the higher end of that range, and there's always scope for us to outperform. We're really pleased. We have great belief in that product. I think that is validated and the strategy of the team to be kind of patient and wait for the market to come to us on the leasing there. So I think that's a tremendous validation of the product and the leasing strategy from Andy and the team.

I would also kind of just flag that even at that yield on cost, we're going to be materially under-rented in that asset just given how much the market has moved. So I think there's going to be a great ultimate return for our security holders and DWPF, which is our co-investor there. And yes, I would like to kind of see the team surprise on the upside.

The next question comes from Simon Chan from Morgan Stanley.

My first question relates to the buyback. guys. How much of the buyback do you think you'll actually do in the second half of fiscal year '26? And if you are genuine about kicking off the buyback in the second half of fiscal year '26, I would have thought there's scope for you to change your earnings guidance for the year because you're buying back stock at essentially 10% earnings yield and your cost of debt is 5%.

So maybe I'll take the question in two parts. Are we serious about the buyback? The short answer is yes. I think it's not just a statement of intent, but we see real value in the company where it's trading. We see a disconnect. We have a very high-quality portfolio. Valuations have troughed. We see valuations moving north from here. And I think the market is fixated on maybe EPS growth and some noise in the business, be that developments or litigation, those sorts of things. So we see good value at the current level. We need to make sure that as we're executing that buyback, we're doing it in a disciplined way that we have regard to the balance sheet strength, which is really important to us. But I think I am getting more confident around the transaction market. It is improving. And certainly, I think bringing third-party capital into the platform and the confidence we have in doing that, there is scope for us to release a lot of capital.

And as I said in previous responses, I think the buyback is a really good use of capital at current levels. So I can't predict where the stock price is going to be in three months' time, and we're not going to put that into guidance. But certainly, at current -- trading at current levels, if we can be more active on capital recycling, I think you're going to see us being very active.

Okay. Fair enough. My second question, in Slide 17, and I think Andy Collins might have touched on this. That's that last bullet point, high threshold to commence new development projects. I think he referred to that after talking about scrapping central place. What's your new threshold now? Like are you going to have a -- have you guys done the review and have settled on a high yield on cost hurdle before you kick anything off? Can you talk to that, please?

I would say coming back to our capital allocation framework, this is something that is constantly assessed. And when we kind of look at alternative uses of capital, including things like a buyback, which we've announced today, there is a very high threshold for us to start new projects. So that's not to say that we're not going to do it, but where we do it, it needs to be capital efficient. We need positive economics from the management enterprise, and we need to believe that the underlying projects are going to deliver really good risk-adjusted returns. So -- that's how we...

I get that Ross. But previously, Central Place was -- you were guiding to, I think, 5% to 6% yield on cost and you've now scrapped it. So can I assume that 5% to 6% no longer custom?

I think that's probably fair to say 5% to 6% yield on cost kind of depending on where cap rates are is a pretty skinny development margin. So that's not a good use of shareholder capital, and we won't be committing projects on that basis.

The next question comes from Andrew Dodds from Jefferies.

In the remarks, you noted that $1 billion of real estate redemptions were satisfied in the period. I'd just be interested to hear where that redemption backlog is sitting today. I think it was around $3 billion back in the August results.

Andrew. Yes, redemptions are around about $2 billion. We satisfied about $1.5 billion during the half year period. And they're now around evenly spread between real estate and the infrastructure exposures. And infrastructure will obviously be dealt with in line with the APAC court case resolution, which isn't too far away. So our expectation is that the current redemptions will likely be dealt with within 12 months.

All right. That's a good outcome. And then just secondly, on trading profits, the expectation this year was for $40 million post tax. It looks like you have done that alone in the first half. So I guess just the expectations for the second half. And also just in FY '27, the slide on Page 59 in the presentation sort of shows pretty minimal opportunities for trading profits. So I mean, is it pretty safe to assume that there won't be any contribution in '27?

Look, I might take the comment on '27 and Keir can talk to '26. I think what we're providing is in guidance that as we sit here today, the realization of meaningful trading profits and they have been a meaningful contributor in '26, the likelihood of that recurring in '27 at this point in time seems lower probability, and we're flagging that to the market.

What I would say on trading profits is I am confident in the value creation that sits in projects that we currently have under our control and development in the trading book. I think it is just a matter of timing and the decisions that we're going to make in terms of the realization of those profits. So I think that's how I'm thinking about '27.

But Keir, do you want to comment on '26?

Sure. Thanks, Ross. So you are correct. The vast majority of trading profits have been realized in the first half. There will be a very immaterial amount coming through in the second half. So I wouldn't factor too much into your forecast. We're still expecting circa $41 million for the full year.

The next question comes from Adam Calvetti from Bank of America.

Just on Atlassian, I mean, there's $610 million to spend, it's well above the current run rate that you've been spending CapEx at. I mean is there any financial implications if this was to be delayed?

Yes. So, Adam, it's Andy. So under the contract, it's a fixed price contract. We have the protections in the event of a delay. So from that respect, it's typical for a development like that. Are you -- is there more to your question from a financing perspective?

No, just any financial implications for DEXUS and then whether it's with the actual tenant, if that was to be delayed, it sounds like there's not.

Yes, that's correct.

Okay. And then just on office, I mean, of that 80-odd or 90,000 that you did over the half, I mean, how many tenants are expanding versus contracting in size?

Yes. Good question, Adam. So just like the breakdown of that leasing volume, about 20% is tenants upgrading. That's the first thing to note. About half of the tenants by area reflect renewals. That's the second thing to note. And in terms of growth, there are some great examples of tenants within the portfolio growing going from one tenant. One example is in 25 Martin Place, a financial services tenant going from one floor to two. And there are others with smaller tenants coming out of incubators, small suites moving up the curve into larger suites. And so that's about 25%.

But just to clarify that, so 20% upgrading, half are renewing and 30% are contracting?

I didn't say contracting, sorry, Adam. So you need to look at those proportions independently of one another. To answer your question directly, about 25% of tenants we dealt with grew.

The next question comes from Ben Brayshaw from Barrenjoey.

Could you just talk about the rationale for the issuance of the subordinated notes during the period, the $500 million? And could you also clarify the margin achieved on that new debt, please?

Sure. Thanks for your question, Ben. So the issue of the sub-notes, I'd say that was a very prudent and opportunistic capital management initiative. It provides us with enhanced financial flexibility to pursue investment initiatives, certainly those with pretty attractive risk-adjusted returns whilst our planned capital recycling is ongoing.

In terms of spreads, I mean, you'll have seen DCM spreads have narrowed and the sub-senior spread is now at historically tight margins. So the 5.25-year notes were issued at 1.75% over three-month BBSW and the 8.25 were swapped back to floating, and they reflected an initial margin of 1.85% over three-month BBSW.

And will you receive equity credit from your rating agencies for those notes?

That's right. We will. 50% equity credit.

Terrific. And just in relation to your comments, Ross, on becoming more capital efficient to build the balance sheet portfolio. Do you have a target interest in mind in so far as ownership that you would like to maintain across the assets that you bring in capital partners for?

Look, that's -- it's going to be considered on a case-by-case basis. I think the reality is we have a really high-quality portfolio. There's lots of options for us. We have existing JVs, which are 50-50, which we can bring third-party capital into. And we have existing assets that we own and control that we can establish new strategies around. So I think it's going to kind of depend on what clients want. And ultimately, we're going to run a bunch of options concurrently and choose those which are best for DEXUS security holders.

I wouldn't see a scenario where if these are high-quality assets, which they are, we don't want to -- we want to have a meaningful aligned interest with our clients. So that's, call it, in the range of 10% to 20% would be kind of at the bottom end.

Okay. And would Waterfront Place and Atlassian potentially form part of those capital and partnering transactions?

I'm not going to be specific on assets, but I would say, as a general principle, we are open to looking at every asset in the platform and we'll be, as I say, running options concurrently to assess what is the best outcome for DEXUS security holders having regard to, to be frank, what we sell, but also the redeployment and what's left afterwards.

The next question comes from Tom Bodor from Jarden.

I just was interested in the passing yield on the circa $800 million of divestments.

I don't know that we have that one to hand. We might come back to you on that.

Okay. But I mean if I take something like 100 Mount Street, is it fair to assume that it's relatively high passing yield?

There's a reasonable passing yield. I would say that asset has got a reasonable amount of CapEx coming in the next few years. So we think divesting at these levels is an attractive decision at this point in time.

Okay. And then on the Waterfront project, just would be interested, can you confirm that you've allocated 100% of the podium costs to the first tower? Or have you pro rata it based on the square meters of the towers above or some other formula?

So when we look at the total project costs that are quoted in the appendix, the cost of the podium is in the Stage 1 cost. In terms of the yield on cost, we strip that out, and we can go into a little bit more detail later today, if you'd like, around the methodology. But we take that out in terms of calculating the yield on cost for Stage 1, but it is included in the yield on cost that we quote for Stage 2.

Okay. And then I guess just following on from that, in light of the positive momentum you've had on leasing there in that first tower, how do you think about the potential to get the second tower going in the next couple of years? Or is it really too early at this point to consider that?

Look, I think that's a quality problem to have given the opportunities that we have in the portfolio. But I refer to Andy's earlier comments as a high threshold to commence. New development projects will be somewhat guided on that project as well by our partner there, which is the wholesale fund, DWPF.

I think as there is increasing flow and interest from capital, that might be something that we reassess over the next 12 months, and there's certainly going to be some synergies in keeping continuity of contractor on site. So it's not really a decision for today. I'll just kind of make the point that for DXS, it's marginal capital, it's going to be a high threshold. So that is going to be a gating issue for us.

The next question comes from David Pobucky from Macquarie Group.

Just a follow-up on the buyback and how you're thinking about balancing the buyback development and growth initiatives. I mean, DEXUS reset its target payout ratio, I think, almost a couple of years ago now to retain more capital for growth. So perhaps if you could talk a bit more about some of those growth initiatives you're working on, please?

Look, I would certainly like to be growing the business more. And I think the market is increasingly conducive to where we kind of see the cycle and we see flow of capital from clients. But the reality is, given where we're trading is DEXUS security prices are really compelling proposition. So to be frank, new projects and opportunities are going to compete with that. So as long as we're trading at these levels, that's a pretty high bar.

I would like to think -- and if I kind of take a step back, we have a significant balance sheet. And so the scope for us to undertake considerable capital recycling and releasing a lot of capital by bringing third parties into that investment portfolio actually, I think, gives us scope to do both. But obviously, we'll be assessing all those opportunities on a case-by-case basis at that point in time. So I can't predict where the share price is going to be. All I can say is as I sit here today, it looks very attractive from a marginal use of capital.

Just second question on Office. You saw a modest improvement in incentives in the period. Would you say FY '26 is the peak year for incentives? And what's the expectation around when that starts flowing through to earnings?

Well, David, just in terms of market incentives, so we've seen vacancy peak in Sydney and in Brisbane and in Perth. Vacancy is expected to peak in Melbourne shortly, next 12 months. And so that should flow through to market incentives. And of course, our incentives, we try to manage them lower than that market number.

I think if we're thinking about just the pure dollar spend in terms of incentives. So I would expect this year, CapEx will be sort of probably a little bit below what it was in '25, but is expected to be higher in '27 off the back of the strong leasing that the team has been doing.

The next question comes from Howard Penny from Citi.

I just wanted to ask about the equity raising. So they raised -- you guys raised $640 million in third-party equity commitments and $280 million secondary unit transactions. Could you describe where the equity interest is coming from domestic, international? And maybe just as far as possible, give us some background as to where these equity inflows are coming from?

Sure, Howard. We've seen a wide variety of interest from -- we've got a diversified platform with different channels of capital, and it's safe to say there's a wide variety of interest that, that attracts. So we've seen increasing interest from offshore investors, particularly in the pooled funds. And then from a domestic investor perspective, what they're increasingly looking to do is partner with us in some of our initiatives. So the DDIT trust, which was launched is the first in a series, and we've seen very, very pleasing demand from investors to essentially come into a club. That's been largely domestic, but I would say we've got a wide variety of interest from a wide variety of areas at the moment.

And my second question is just on cost of debt and where you see that potentially peaking over the next 2 years and refinancing risk on that?

Thanks, Howard. I'll take that one. So the cost of debt, you'll have seen has increased. It went from 4.2% up to 4.7% for this half. I expect for the full year, we'll be sitting at the high 4s next year, sort of 5-ish. So we are pretty close to market at this point. In terms of refinancing risk, very minimal expiries coming up. We have been very proactive with refinancing. We just did more than $1 billion on average at about 15 basis points, tighter rates and an increase in tenor. So we will continue to take a proactive stance with our refinancings.

The next question comes from James Druce from CLSA.

I was hoping you could comment just on the bucket of performance fees that you might have. I noticed you have the second half secured. I was just trying to get a sense of what's left after that.

Is that -- sorry, in relation to '26? Or what's the longer-term outlook for performance fees, just to clarify?

Yes. You've got the second half secured. So I'm just wondering how you're looking for '27 and '28. Are there things behind that, that can come through? Or is this sort of a strong year for performance fees...

So, the significant contributions in, to be frank, '25 and '26 was there was an infrastructure performance fee on a mandate that was crystallized on the sale, and there was a significant outperformance in the industrial strategy, the DALT portfolio, which was realized over a couple of periods. So I would say they were at the kind of the larger end of the scale. We are trying to introduce performance fees into new strategies and initiatives. They're not going to be straight line. They are going to be a little bit lumpy. And I think what we're kind of flagging is as we look towards '27, that level of kind of contribution is unlikely at this point in time.

Yes. Okay. That's helpful. And just interested in your Slide 18, just looking at the net effective rent forecast. I was sort of wondering, have you incorporated any AI impact into those forecasts? And how do you think about the sort of the uncertainty or dispersion that could create over the next 3 years?

I just generally in relation to dispersion, we've kind of been calling this for a while we see increased dispersion in performance in assets across, I would say, both real estate and infrastructure. And to be frank, the better assets we think are going to do better and there will be assets that potentially get stranded or left behind.

I think the good thing for us is whether it be in the balance sheet portfolio or our funds, we generally have those high-quality assets in those premium locations. So I'd say at a group level, we feel well positioned. And these are difficult things to predict. But Andy, I know you've got some views on this.

Yes. So I think difficult to predict is right. So in terms of how AI lands, no one really knows right now, but we -- what we're seeing in our portfolio through engagement with our customers is that it is resulting in some of our customers growing. And so I'll use an example where a law firm following implementation of an AI augmentation program actually leased more space because they could adjust their ratio of lawyers to non-lawyers. And so they needed more space. That's one anecdote. You can't apply that to the whole portfolio or to the market. But I think it's not as simple as drawing a straight line between AI implementation and like a blanket adjustment to office demand.

And I would say, thematically, we do kind of see that the nature of work that is more likely to be impacted by AI is typically going to be middle or back office functions. And those -- that work is typically going to be in the suburban markets. And that is not a space that we are particularly exposed to.

The next question comes from Yingqi Tan from Morningstar.

My first question is in regards to that $1 billion redemptions. Just wondering if you are able to quantify how much of these are secondary transactions and how much is of this funding actually left the platform?

So during the half, about $1.5 billion was set aside. Most of that was in -- there was also a special redemption in the shops fund. And then as we said, about $280 million of that was through secondary transactions, so obviously stayed on the platform and the rest were units being redeemed. So those units disappear.

And with the money that has been redeemed, could you also share whether it's sold to any external parties? Or is it I guess, within DEXUS other platform?

Essentially, the process is we free up cash to meet redemptions. So we'll sell assets or use debt. So by virtue of the fact that there's assets being sold, that would be off the platform. And to the extent it's debt, well, it's just an increase in debt in the fund.

That's clear. And my second question is to Andy. Would you be able to share what the office leasing spreads were in the past six months for the deals that you have achieved?

Yes, no problem. So face spreads were positive across all markets. For our portfolio, the face spread was up 9%. The effective spread trajectory has come in from 16% or negative 16% to negative 10% to now negative 5%. So just to clarify, the effective spread on the leasing that we've done in the first half is negative 5%, which is a material improvement. So in terms of the submarkets, in Brisbane, we achieved positive 10% effective spreads.

The next question is a follow-up from Adam Calvetti from Bank of America.

Ross, I just wanted to follow up on your comments made to Simon earlier on the 5% to 6% yield on cost guidance, essentially not cutting the mustard, I think, is the term. I mean I'm looking at the uncommitted developments, we're still quoting 5% to 6% for Waterfront, 80 Collins and Pitt and Bridge. Does that mean to get revised going forward?

We're not committing those projects yet, I think that's a question for when we're committing those.

Is that a target range? Or I mean why is that in there?

I think we'll assess those when we're kind of close to the start line. Things like Pitt and Bridge Street are still years away. And the reality is they are income-producing assets. So it's not a decision for today. I think what we're -- the yield on cost is and we think about development margins, we have to have regard to where we think stabilized cap rates are. Again, that's an assessment that we kind of think we need to make at the time of starting those projects. So rest assured, if we're deploying capital into development projects, we're going to need to be compensated for the risk and it's going to meet our internal hurdles.

At this time, we're showing no further questions. I'll hand the conference back to Ross for any closing remarks.

Thanks, everyone. Enjoy the day, and we'll catch up with you over the next few weeks.

Thank you for standing by, and welcome to the DEXUS FY '25 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Ross Du Vernet, Group CEO and Managing Director. Please go ahead.

Well, good morning, everyone, and thanks for joining us for our 2025 full year results presentation. I'd like to begin today by acknowledging the traditional custodians of the lands and water pays upon which we operate, and pay our respects to Elders past and present. Today, you'll hear from Keir on the financials, Andy and Office, CrisolIndustrial; and Michael on Funds Management. Concluding the presentation, I'll provide a summary and then open up to any questions that you may have.

DEXUS is a unique investment proposition with scale across the real asset spectrum. Our high-quality balance sheet portfolio of mainly office and industrial, together with a large diversified funds management business differentiates us in a competitive market. Each of our sectors are scalable and with the potential for continued strong returns. We also benefit from access to diverse pools of capital through the cycle with third-party capital accounting for more than 70% of the platform's assets.

With our executive team now fully in place, we are well positioned to drive performance across both sectors and funds as we enter the early stages of a new cycle. Our strategy is unchanged. Our vision to be globally recognized as Australasia's leading real asset manager continues to guide our decisions. The DEXUS platform leverages our strength in transacting, managing and developing quality real estate and infrastructure assets to deliver superior risk-adjusted returns for DEXUS security holders and our clients. Our high-quality balance sheet portfolio, together with a large diversified funds management business continues to differentiate us.

Our culture, the quality and scale of the portfolio and the projects we have underway, coupled with our approach to people, enable us to attract, retain and develop leading talent to ultimately create value for customers, clients and our investors.

Turning to the FY '25 result. We delivered on our guidance and maintained office occupancy well above market, ensuring strong cash flows and AFFO. We had a record year of leasing across the industrial portfolio. Our divestment program is on track with $1.1 billion divested and gearing maintained at the low end of our target range, despite the impact of devaluations over the past 2 years.

Property portfolio valuations turned positive in the second half as the cycle turn. Our core diversified fund and our shopping center fund outperformed their peers and benchmarks. And against the backdrop of some fund specific matters that we continue to work through. We're delivering on our fund strategies, divesting assets to facilitate $1.8 billion of redemptions and enhancing portfolio quality. Pleasingly, we facilitated over $450 million of secondary unit transactions and continue to raise equity for growth-focused strategies, like DREP2.

Our medium-term goals aligned to our strategic priority areas of transitioning the balance sheet, maximizing contributions from the fund business and unlocking our deep sector expertise. We are making good progress against each of these goals. In addition to the highlights already outlined, we selectively deployed capital into funds, including DRIP 2 and DWS supporting the acquisition of Westfield Chermside, which has reset that fund. We materially reduced costs and closed 2 subscale funds. We strengthened organizational capability with key executive hires and system investments. We achieved strong customer advocacy supported by a high Net Promoter Score. And while progress has been slower than we would have liked, we continue to actively explore opportunities for new product launches to position the platform for growth in a recovering market.

We remain committed to sustainable outcomes, focusing on our priority areas where we can make the greatest impact across our customers, climate and the communities. DEXUS continues to be recognized as a global leader in sustainability and some of our sustainability highlights are shown on this slide. Our commitment to sustainability continues to enhance asset quality and support long-term performance. We see this reflected in the choices that our customers make. Recognition is a welcome outcome that our focus remains on delivering meaningful impact and ultimately long-term returns.

I will now pass you on to Keir to cover off on the financials.

Thanks, Ross, and good morning, everyone. Turning to the results in detail. In line with expectations, total AFFO for the year was $484 million. with the distribution of $0.37 per security, reflecting a payout ratio of 82% aligned with our updated distribution policy. Office FFO reduced marginally as a result of divestments, largely offset by fixed rent increases and the recently completed refurbishment at 123 Albert Street.

For the industrial portfolio, the reduction in income was driven by divestments and downtime as well as the impact of higher one-off income in the prior corresponding period. partially offset by development completions and fixed rent increases. FFO from management operations increased to $155 million, reflecting more than $40 million of performance fees during the year and the benefit of cost savings, partly offset by the impact of redemptions, disposals and lower valuations.

The impact of redemptions is expected to continue into next year, completingly we have secured circa $35 million of performance fees for FY '26. Active management of the cost base has resulted in lower group corporate costs for the period. An increase in net finance costs was largely driven by lower capitalized interest following completion of 123 Albert Street as well as higher interest rates.

Higher funding costs are also expected to continue to impact in FY '26 as the weighted average hedge rate increases. As expected, trading profits were significantly lower this year and circa $40 million of trading profits post tax have been secured for FY '26 from the sale of Brook Hollow and Chester Hill.

Leasing CapEx has increased slightly as a result of the impact of higher incentives from office deals struck in prior periods, flowing through the portfolio this year, partly offset by the impact of divestments. We are seeing clear signs that we have passed an inflection point in property markets. Overall, for the 12 months to 30 June, the value of the portfolio declined by 1.1%. And significantly lower in contrast to previous periods.

Pleasingly, the second half of the year saw valuations increase by 0.4% for office and 1% for Industrial, demonstrating the quality of the portfolio. Across the broader Dexus real estate platform, approximately 70% of FUM recorded a revaluation uplift in the second half. reflecting the quality of the wider platform.

Moving to capital management. Our balance sheet remains strong. with look-through gearing at the lower end of the 30% to 40% target range, providing capacity to fund committed expenditure. We have been active with refinancing resulting in a weighted average debt maturity of 4.3 years, $3 billion of headroom and manageable near-term debt maturities. 86% of our debt was hedged during the year at an average hedge rate of 2.1% and providing material interest rate protection. Looking forward, there is $1.5 billion of remaining spend on the committed development pipeline over the next 4 years with circa $700 million expected to be incurred in FY '26.

For many years, we have taken an active approach to capital recycling, divesting noncore assets across both the office and industrial sectors to enhance the quality of the portfolio and the strength of the balance sheet. The portfolio is now heavily weighted to premium-grade office assets in core CBD markets as well as core industrial assets, placing us in a strong position to benefit as the market recovers. Our divestment program, together with the completion of committed developments will further enhance the quality of the portfolio while maintaining a prudent level of gearing.

Thank you, and I'll now hand over to Andy.

Thanks, Keir, and good morning, everyone. Our $9.7 billion office portfolio continues to demonstrate resilient fundamentals. We maintained occupancy of 92.3% and which remains well above market average of 85.7%. Average incentives were 26.8% below market and lower than in FY '24, reflecting the quality of our portfolio and our focus on maximizing long-term value rather than buying occupancy at any cost.

We achieved like-for-like income growth of 2%, impacted by downtime and amortization effects -- on a face basis, we delivered like-for-like growth of 2.3%. We listed 107,000 square meters across 248 transactions during the year, and our weighted average lease expiry remains healthy at 4.2 years. Looking at our expiry profile, we aim to have no more than 13% of the portfolio expired in any single year. For FY '26, we're well positioned at 8%. We have leased more than 11,000 square meters at Australia Square during the year, evidencing strong small tenant demand.

Much of our near-term expiry sits in assets that are well positioned in their markets, including 25 Martin Place in Sydney and 240 St. Georges Terrace in Perth. Our vacancy challenges are concentrated in a small number of assets the key vacancies we're focused on, a 30 Hickson Road in Sydney's Western Corridor at 2% of income and 80 Collins Street in Melbourne at 1.9% of income. Our committed office development pipeline continues to enhance portfolio quality. Construction is progressing at Atlassian Central and Sydney with completion on schedule for late 2026. At Waterfront Brisbane, Stage 1 practical completion is now forecast for late 2028, following prolonged adverse weather conditions and complexities with certain in-ground construction works which are now nearing completion.

We're working closely with our construction partner and customers to mitigate the impact of this delay, while the outlook for the Brisbane premium market continues to improve. Atlassian Central is 100% pre-leased with a 15-year lease and 4% annual increases. Waterfront is 52% preleased, with 3.4% average annual increases. All committed projects are delivered through fixed price contracts with Tier 1 contractors, providing construction cost confidence and various protections in the case of delay.

The office outlook shows encouraging signs that we've moved through the bottom of the cycle. All 4 major CBDs recorded positive net absorption over the past quarter with Sydney CBD recording 92,500 square meters, the highest in 9 years. Sublease space has continued to decrease and is now close to average levels. Upcoming office supply remains low relative to long-term averages, providing scope for vacancy rates to fall and rents to grow. Office demand is gaining momentum, driven by employment growth, return to work trends and companies centralizing operations. Importantly, positive net absorption is strongest in premium assets. We expect solid effective rent growth across the key CBD markets over the next 3 years, the strongest being in Sydney premium assets where we have good exposure.

Our portfolio is well positioned to benefit from this recovery. Around 76% is located in core CBDs, where occupancy and incentives continue to outperform the wider market. We've built strong customer diversification. Our top 10 customers account for around 20% of office income, significantly less than comparable peer portfolios. Our average tenancy size is around 1,000 square meters and these smaller tenancies generate higher returns with lower volatility. Our portfolio occupancy has consistently outperformed the wider market with average incentives well below market rates across each of the major CBDs.

In summary, we own and manage 1 of Australia's highest quality office portfolios that performs above market benchmarks. While we faced some challenges with select vacancies and development timing, the portfolio fundamentals remain sound, and our portfolio is well balanced. The Sydney CBD premium market, where we have the strongest exposure shows encouraging signs of recovery, which creates opportunity for our well-positioned assets as the cycle progresses.

Thank you, and I'll now hand you over to Chris.

Thanks, Andy, and good morning, everyone. The premium assets in our industrial portfolio continued to perform well with record leasing volumes achieved across the stabilized portfolio. Occupancy declined this year due to vacancy at select assets such as Kings Park, which is now leased. As anticipated, leasing for lower-grade assets has taken time to materialize. Occupancy by income finished the year at $96.2 million Occupancy by area is above market at 97.4% and WALE has improved to 4.5 years.

While downtime at vacancies impacted like-for-like income during the year, we expect strong like-for-like growth in FY '26 on the back of this year's robust leasing activity and the circa 25% re-leasing spreads achieved across the stabilized portfolio. The portfolio remains under rented at 11.7%, presenting a significant opportunity to grow income. Approximately 25% of leases are due to expire by FY '27 and allowing rents to be reset in line with market.

With a focus on improving portfolio quality, we continue to deliver premium industrial spaces across New South Wales, Victoria and WA. The staged pipeline is active with 10 projects progressing across 190,000 square meters. Looking at our expiry profile, we have derisked FY '16 expiries to 7.4% from 14.1% a year ago. We are focused on resolving key vacancies at older stock at Matraville, Greystanes and Lakes Business Park. Much of our vacancy and near-term expiry are concentrated in prime located assets in areas that represent strategic value-add opportunities that warrant targeted capital investment to enhance leasability and unlock the next phase of growth.

Taking a closer look at our portfolio. The industrial portfolio is located in well-connected logistics hubs across Australia positioning us to meet the evolving needs of our customers. The majority of our relationships are held directly with high-value customers with businesses that are growing or aspire to grow. We work closely with them to solve supply chain challenges through data-led analytics, market insights and tailored solutions. Around half of our portfolio is concentrated in large-scale master-planned precincts that Dexus has developed, enabling operational and development scale benefits.

Within these precincts, the rise of e-commerce is driving demand for smaller format last-mile delivery facilities, which complement the larger format assets we develop for major customers. Our assets are designed and delivered for long-term flexibility and operational efficiency, incorporating market-leading sustainability features such as battery infrastructure to support rooftop solar. This approach has enabled us to capture a repeat business with leading organizations, including Wesfarmers, Kmart and Amazon.

Turning to the industrial outlook. Underlying market fundamentals remain supportive, with demand holding firm amid constrained supply. We have seen a shift from speculative to pre-lease development strategies as elevated project costs and planning delays continue to impact feasibility and extend delivery time lines. Retail spending is firming and online sales are once again trending upward, driving renewed demand for retailers and logistics providers. These dynamics are expected to support leasing activity in the year ahead. As the market begins to diverge by location and asset quality, our national portfolio is well positioned -- the majority of our assets are in sought-after locations and have been developed by DEXUS, giving us a strategic advantage through a portfolio of primarily first-generation assets.

Thank you. I'll now hand over to Michael.

Thanks, Chris, and good morning, everyone. Our $35.6 billion funds management business has scale and is diversified across sectors and investor type. We have a proven track record of delivering performance for our clients, which underpins the deep relationships we have with more than 150 institutional investors. In recent years, we've been working through elevated redemptions as some investors adjust their strategies and seek liquidity against a challenged macroeconomic environment, particularly across core products.

We have actively divested assets on behalf of our clients to facilitate redemption requests and maintain prudent gearing levels while enhancing portfolios. The market for capital raising globally remains challenged, but there is a cyclical element to this. And the recent improvement in unlisted wholesale fund returns is driving improving sentiment. Having access to diverse pools of capital positions us well as the cycle turns.

Turning to funds highlights for the year. As Ross mentioned earlier, our flagship funds continued to outperform their benchmarks. Notably, the $13 billion diversified wholesale fund and the Shopping Center Fund both materially outperformed for the 12-month period. Following the sale of DWSF's stake in Macquarie Center, we leveraged our long-standing relationship with Center Group to secure a 25% interest in Westfield Chermside, 1 of Australia's best retail assets in an off-market transaction, delivering an immediate performance uplift with growth potential.

Despite a subdued capital raising environment, we continue to tap into investor appetite for growth-focused strategies, raising funds for DRAP 2 and deploying capital across DRAP 1 and 2. We also acquired a further 9% interest in Powerco on behalf of a client, increasing our managed stake to 51%. We Several funds and investments also gained recognition for ESG achievements in line with the platform's focus on sustainable outcomes.

The leadership team we have put in place is focused on driving performance and fundraising. And over the year, we closed 2 subscale funds, and we are working through fund specific matters, including redemptions with APAC litigation underway and a court hearing scheduled for November this year. We continue to explore potential new product launches in line with client demand. and with real estate markets rebounding and domestic superannuation sector expected to double over the next decade to more than $8 trillion. The funds business is well positioned with high-quality assets in markets which are expected to outperform.

Thank you. I'll now hand you back to Ross.

Thanks, Michael. Looking at FY '26, we've refreshed our medium-term goals to maintain momentum against our strategic priority areas. To transition the balance sheet, we intend to deliver key milestones on our committed developments, continue our recycling program with about $1 billion remaining and continued co-investing alongside clients into sectors with tailwinds.

To maximize the contribution of funds, we'll continue to execute the opportunity fund strategy, including the final close of DRP 2 resolve fund specific matters and position the product offering for growth as the cycle turns and pursuing new products and opportunities that will align with client demand.

And finally, to unlock our deep sector expertise, we'll focus on delivering strong investment performance across all sectors while maintaining high customer satisfaction and enhancing our talent and capabilities to unlock the full potential of our people.

We invest for the long term and despite the market challenges over the past few years, we are now past the inflection point with valuations turning positive in the second half. now is an attractive time to be investing in real assets. We expect the next phase of the cycle to be driven by fundamentals and our platform of high-quality assets and deep expertise positions us well to deliver for our security holders and our clients. Barring unforeseen circumstances for the 12 months ending 30 June 2026. DexS expects AFFO of $445 to $0.455 per security and distributions of $0.37 per security.

Thank you. That ends today's formal part of the presentation. We'll now pass to any questions that you may have.

[Operator Instructions] The first question today comes from Howard Penny from Citi.

Congrats on the results. And I just wanted to ask a question on the outlook for office developments, the rhetoric seems to be becoming more positive on the inflection point. I was just wondering when you see investors starting to think about the next development phase.

I want to provide a general comment and then Andy can give you his insights. Look, I think development in office is still challenged just on the basic economics of construction costs. That being said, I think what we have been pleased on the upside is this bifurcation that we're seeing in the market for the very good projects in that very tight part of any given market, clients and customers are prepared to pay pretty much record rents, and we're seeing that with the resetting of rent and things like waterfront. We're even seeing that in our core investment portfolio when you think about the high level of occupancy we have in the prime part of the market here in Sydney, we're at 97.7%. So I think at the top end of the market, if you can get the rent, it may be possible, but the economics are still challenged on construction costs. Andy?

I think -- Howard, good question. So I think that demand that you -- or that dynamic you're seeing where given the constrained supply outlook in the key markets, it does change the viability potentially of future office developments. I think the first order impact of that will be that it provides tailwinds to the completion of the developments that are already underway. And then I think -- so that's going to help us at Waterfront Place.

And I think beyond that, getting out into 2030, the early 2030s, I think that there will be very focused demand on the next generation of office developments. And I think whilst it's sort of easy to say, look, we might get a big but of developments coming in 2030. I just don't think that's going to happen for the reasons that Ross has outlined.

Crossing the economic viability of the development, I think, will require some pretty significant growth in office rents and contraction in incentives. So there will be development, but I think we need to see the fundamentals in the market play out to a greater extent and materialize before people dust off their feasibilities.

I think the pleasing thing for us, if you think about how our portfolio is set up today is we're going to get all the benefit of that through the further leasing we're going to do with projects like Waterfront. So we really kind of have our construction price. And so those really strong market conditions at the top end of town and particularly in the market like Brisbane when we get to access all of that through the future leasing we're going to do over the next couple of I think we're well positioned. And to the extent the projects start, they're probably going to be the best projects in town. They're going to be those ones in those best locations, we feel reasonably optimistic about things like ST CommonStreet.

And then just maybe a second question just on third-party capital demand. As far as you can comment you -- where are the areas that investors see most interested to are you seeing at mats?

Thanks, Howard. We're seeing a general interest, I guess, across the board. The higher returning strategies are obviously in demand and they have been. But with reducing interest rates -- the core strategies are now coming back into focus. And the funds business, we've seen really positive returns, well, for the last half, but the funds -- our funds, in particular, are starting to outperform very significantly. The flagship fund DWPF outperformed by 4.4% over the year. So that has generated quite a lot of interest and secondary unit sales were up quite significantly as well.

The next question comes from Lou Pirenc from Jarden.

Two follow-ups to Harald's questions. I mean first of all, where does the redemption queue sit right now?

It's consistent with where it was at the half year around about $3 billion.

And then just on the developments, I noticed that you tightened the expected return on Atlassian Central to the bottom end of the range, but you didn't change waterfront despite the delay. So can you maybe talk through each of those?

Yes. Sure. So on Atlassian, the yield on cost range that we provided was based on potential outcomes on a series of preventional some items of provisional some items. Now as we approach PC, we can provide a tighter range as those provisional sum items are resolved. And so that's the difference in that on cost. And we haven't changed the yield on cost at order front place despite the delays, because we do have some contractual protections in place. And as the earlier conversation touched on, the leasing market in Brisbane is improving solidly. And so delivering that project at a later point in time could actually help with the project economics.

The next question comes from Simon Chan from Morgan Stanley.

Can you give us some insight as to what you think leasing incentives and maintenance CapEx could end up in FY '26. I noticed that it increased moderately in '25 to about $190 million -- just how should we be thinking about it for next year?

Simon, thanks for the question. We're expecting for FY '26 that maintenance and leasing CapEx will be broadly in line with where it sits for FY '25. Within that, there may be a change in the composition with a lower contribution from office given the divestments that we have made and a higher contribution from industrial given the volume of leasing commencements in FY '20.

Great. My second question is just in relation to -- just a follow-up on the previous one. I think on Alain, you mentioned the yield on costs came down because of a series of provisional some items. Can you just elaborate on it? Because you on cost is a pretty simple calculation. Is it at a headline level, it is rent divided by cost. Your cost hasn't gone up per your preso, is still $1.4 billion. Your rent was locked in, was when you signed a lease a couple of years ago. So what has actually changed?

Thanks, Simon. So what's changed is that the initial -- so your description is right. But given the provisional some items, and you might recall, we did describe that with this development, we have more provisional sums than we typically do for development given that it is so innovative -- and so with that sort of large bucket of provisional sums at the outset, we provided a yield on cost range that considered a range of potential outcomes on those actual provisional sums. And so 1 way to think about it is that we're resolving the costs of those provisional sums at the upper end of the earlier range, which pushes the yield on cost down to the lower end of the earlier range. And the total cost would be including the full amount of the provisional sums.

Right. Okay. So is that -- and it's got nothing to do with rental income?

No, no. So I mean, this groundbreaking development is fully let to Atlassian for 15 years with fixed increases. Also worth noting -- I mean talking about yield on costs. So the yield on cost is calculated on actual costs -- but we've already written down the asset, which is reflected in NTA. So if you were to think about the yield on completion value, that's going to be more like 5% to 6%, and that would make a really attractive risk-adjusted investment considering those 4% fixed bumps for 15 years.

The next question comes from Tom Bodor from UBS.

I'd just be interested in -- I'm sorry to keep going back to a bit waterfront where there are delays and there's no productivity issues in the Queensland market. I'm just interested in understanding within that development, 2 things. Is the builder seeking material variations given those delays as the first thing. And secondly, who's on the hook for the lease tails there?

Tom. So look, yes, we have had delays, obviously, as I said, due to adverse weather conditions, we've had 1.4x the average annual rainfall in the past 12 months. There have also been some complexities in the ground. Now John Harman is doing a terrific job in overcoming those complexities and making up for lost time. And you can see on site that the vertical structure is starting to come out of the ground. And as I said in the presentation, we're working with them and with our customers to mitigate the impact of the delay.

So 1 potential lever there, just to illustrate what can be done is that by integrating the delivery of a fit-out development, you can save time. So where previously a customer had anticipated doing their own fit out post PC. If you integrate that fit up with base building construction, we can reclaim that period of time, which, in some cases, can be 10 to 12 months.

But I think it's important to note that we're not the builder. So we selected John Holland as they had contracted because of its technical expertise with this complex build and its strong capital backing. They're doing a great job, not just in moving the program forward, but they're also setting a new standard for sustainable construction. I'm sorry if you can hear that both in the background.

And look, you can definitely expect that for a project like this, we would have negotiated strong contractual protections before the start of the project, and that's exactly what we did. We're not going to go into those in this conversation that would be unfair to John Holland. But this -- delivering the project in an improving market could actually improve project economics. So this is going to be Australia's best office development. It's going to reshape Brisbane's office Skyline, and we're really excited about it. That's why we've sort of been pacing the let up. We're still at 52% pre-let.

But just on the concept of variations in the contract, are they seeking variations given the various issues that you've encountered?

So there are no extensions of time under the contract for Rain.

Not at all?

No, not unless it's made a certain classification the weather that we have, this is just -- this is an ordinary day.

And are the variations are they seeking other variations given I don't know, industrial relations or other issues?

Look, apart from weather and apart from the complexities in the ground, the program is materially on track, budget is on track. They John Holland is doing an exceptional job of boosting productivity at that site to the point where they have been working double shifts and working the occasional Saturday. So they're as keen as we are to make up for lost time.

Okay. Also, another question on the fund side of things. I mean there's a lot of litigation going on across the board at Dexus. Is that impacting your ability to raise capital, new capital, where you go and speak to investor clients?

Thanks for your question, Tom. I think 1 of the benefits of the platform is it is diverse. And I think at a platform the size that we have, we have close to 40 products and strategies -- from time to time, you're going to have issues in 1 or 2 of those, and that's where we find ourselves now, obviously complicated by some matters in relation to the AMP acquisition. I think what clients understand specifically in relation to kind of the APAC matter in advocating and doing what's in our clients' interest that we need to be in a position where we are litigating. That's not our preference, but that is what we have to do to protect our clients' interest. I think they understand that. Obviously, that has an impact on funds and products that are invested in APAC, that shouldn't be a surprise. That level of uncertainty makes some of those strategies difficult to invest in right now.

But I think what is really pleasing for me is we're having really good traction elsewhere in the platform, -- and I think we're seeing that in some of the growth initiatives and things like DRIP 2, which we'll do the final close in the first half of the year.

The next question comes from James Druce from CLSA.

Just hoping to build up some of the blocks for next year's guidance. Can we talk about how you think office occupancy is going to trend industrial occupancy for your portfolio. How are you thinking about funds management for next year cost of debt all those sorts of things, please?

James, thanks for the question. So if we think about the components of guidance for FY '26, we're seeing growth in industrial FFO, and Chris made some remarks on the call earlier about the volume of leasing that the team have done. Some of that growth will be offset through a lower contribution from office FFO predominantly following divestments, but we're also seeing a material contribution from trading profits in '26 having secured circa $40 million post tax.

The stack growth will be partly offset by an increase in net finance costs as the weighted average cost of debt reverts towards market, as well as a lower contribution from the management business. And outside of that, as we said earlier, CapEx is expected to be broadly in line with FY '25.

Okay. Can we get a little bit more specific in terms of what you're assuming around FUM for the next 12 months? And is occupancy going to be in the office portfolio, 200 basis points or 100 basis points. Can you provide any color like that, please?

So there's a number of moving parts and we've provided a guidance range. In setting that range, we've made a number of assumptions around asset sales, performance fees, trading profits as well as FUM. From a fund perspective, you should assume in '26, we'll see the full year impact of divestments from the funds platform, which were weighted towards the end of FY '25, as well as allowances for asset sales and redemptions throughout the course of 26. Performance fees will be roughly $5 million lower in 2016. Pleasingly, we secured significant cost savings in 25 million. And so hopefully, that gives you a little bit of color around management ops. I might hand to Andy to talk on office occupancy.

Sure. Thanks, Ken. James. So even at the 9.3% occupancy, that is lower than we'd like. But even at that number, it's still 6 percentage points better than the market. We know that we have some FY '26 customers leaving the portfolio and so that occupancy will drop towards 90% before coming back up to about the same level during the course of the year.

Okay. And maybe just on industrial occupancy. Your peers are sort of reporting 99% occupancy. Is industrial expected to pick up towards that level?

Yes. Thanks, James. Look, we've had great success in leasing this year, and you will have seen from the result that we're probably almost halfway through our renewal profile or expiries for FY '26. So we do have great momentum. Obviously, our priority now moving forward, we'll be honing on that vacancy. It's about 2.6% that sits there, leading to the renewals that we already have great momentum on and obviously spend time on that accessing the opportunity of underrenting to 11.7%. So some of that expiry profile is a great opportunity for us as well, and we'll spend time honing in that to achieve those mark-to-markets we had last year at 25% releasing spreads. So we'll keep the momentum going as a focus.

I think just the other point on the industrial portfolio will be just given the sheer volume of leasing that Chris and the team have done last year and accessing a lot of that reversionary potential that sits in the industrial portfolio, which is still materially under rented. It does mean that like-for-like in 2016 is going to be much stronger than 25%.

The next question comes from David Pobucky from Macquarie Group.

Just had a follow-up on the office occupancy question. if you can provide a bit more color, please, around some of the vacancy challenges that you quoted earlier -- they're concentrated in a small number of assets, like 30 Higson Road and 80 Poland Street. If you could please just expand how they're going.

Sure. David. So look, our vacancy is highly concentrated in those 3 assets. I mean it's actually more than half of our vacancy sits in those 3 assets. And so 30 Hickson Road, Collins Street North and Australia Square, we're making some progress at Australia Square. We did more than 11,000 to was 11,600 square meters during the year, which validates the small suite strategy at 80 Collins Street which is 1.9% of income. We've done about -- or not quite half that amount. We've done about 4,500 square meters of leasing there, and that's starting to gain momentum in what is a pretty subdued market down there in Melbourne. But the strategy we're deploying there is to take to market an array of options so that we can maximize our addressable audience -- and so what I mean by that is that we have suites prebuilt ready to go. We have whole floor refurbishments ready to go and a series of warm shells and cold shelves ready to go.

One of the competitive advantages that space offers is that there is the ability to stitch some floors together to create a meaningful premise of size with high-rise views at the east end of Melbourne. And so there aren't very many options for that. And at 30 Hickson Road, similarly, we are deploying a strategy that -- I guess it's a parallel strategy. We're seeking flow floor tenants with a range of fitted options because more than 90% of the tenants in the Sydney market last year were looking for fitted out options, and so we're trying to cater to that market. The difficulty there is that the larger floors don't subdivide typically like very well. So we have subdivided 1 of the floors and the others are being put to market on a whole floor basis.

Whilst at the same time, we can pursue some larger tenant leasing at 30 the bond. The reason we haven't secured a larger tenant leasing at 3 of the bond is because we've lost more than a handful of large tenants that have gone to other properties in the Western corridor for 50% plus to outcomes.

I appreciate the color. Just the second question, and this is in reference to Slide 28, the Luton waterfall chart to FY '24 and FY '25. If you could please just provide a bit more color on the $2.8 billion impact from transitions.

David, that $2.8 billion relates to the transition of the future fund mandate.

The next question comes from Ben Brayshaw from Barrenjoy.

I was just referencing your comments earlier on Waterfront Place, where recent leasing is 30% above the prior leasing at the asset or recent market rents are 30% above, sorry. Have those higher rents being reflected in the carrying value for Waterfront? Or do you see that as potentially incremental to the current underwriting assumptions?

Ben. So I think it's probably a little bit of both. I mean we mark-to-market the development book periodically, as you know. And yes, the catalyst for that reval will be us securing the next tenant or 2 at the development. And in that context, we're making some good progress with some good tenants that would -- they share the vision for Waterfront Place. They see the opportunity that it creates for their business. And at the same time, they accept the rents and incentives are different today than they were when we started the development.

Okay. And so in the presentation, I think it was Ross mentioned that some funds have been closed or rationalized. Do you have any plans for further transitions or streamlining of sort of legacy fund mandates or products in FY '26.

I think, first and foremost, we're very aware that managing client money is an absolute privilege. And that's not something that we take for granted at all. I think what we're focused on is making sure that we can continue to deliver strong performance for our clients in all of those strategies and ensuring that those products remain relevant to what is, in some instance, changing client preferences and needs. So that's not a point in time process. That's something that we continually do and I think DEXUS has a great track record at constantly innovating and improving their product set. So that's what we'll continue to do.

The next question comes from Sholto Maconochie from MLP.

Mine has already been answered. So just assume about.

The next question comes from Winston Sammut from Yuri Asset Management.

I have a question about incentive levels and in particular, comment that you made at Dex's incentive levels are lower than the market. What is the market and what is Dexus' history in level of incentives. And I presume that the test level in terms of incentives for premium and A-grade buildings and then for lower grade. Is that correct? And if so, what is the difference?

Vince, it's Andy. So thanks for your question. We try to be clear and consistent in how we disclose incentives from year to year because it's 1 point where we have been able to deliver better than market outcomes. And so we want you to know about that. The market incentives that we disclosed and referred to are based on industry research and they correspond, I think you can check that for yourself. And the incentives that we disclosed for our portfolio are representative of all of the incentives and lessors works, it takes to secure a tenant. Our average incentives in the portfolio for FY '25 were 26.8%, and that's down from 27.9% in FY '24.

And you're quite right, there is a divergence in incentive outcome between premium, prime and the rest, and we've provided disclosures around that in the pack on the map of Sydney and the map of Melbourne. But we've tried to be really clear and really consistent because it is an area where we are trying to drive incentives down, and we tend to share our progress with you.

And maybe to just nail the point, even within the same geography of Sydney or Melbourne, within the same CBD, if you maybe compare Dolans to maybe the Paris end or maybe the or the core part of the Sydney CBD incentive levels on a percentage basis could be as high as twice what they are. And I think this is an important point. I think our portfolio is really well positioned in terms of all the work we've done in concentrating our exposures into those very, very good locations.

And the other point I would just make is it's less about PCA grade and more about location. I think this has been the big change that we have observed in this kind of next part of the cycle is you can have the nicest shiniest, newest building with all the ESG credentials. But if you're in the wrong part of town, if you're not there where the transport infrastructure is in the mine is the reality you're going to be a price taker on incentives. And in a market like this, where tenant to mine is still weak, that is really, really expensive.

But do you see incentive levels looking ahead, coming down or staying where they are, in general, I'm talking about?

Focus on our portfolio. And I think what we're cardio deliver outperformance for our shareholders and clients. And I think what we've demonstrated is we continue to kind of lead the market on incentives, and that's not driven just by the assets that we have curated in the portfolio. But that is also, to be frank, the leasing strategies that Andy and the team are deploying, the types of customers that they're going after, those that really value I guess, our ability to perhaps deliver turnkey fit outs or even some of the other work that we're doing around the CapEx intensity of office going forward is a huge focus area for Andy and the team. That is essentially what an incentive should be paying for. It should be paying for the -- facilitating the workspace and we place experience, and this is a big focus for us. So that's how we're thinking about it. We're kind of less interested in writing checks to clients and customers to do it themselves.

The next question comes from Solomon Zhang from JPMorgan.

Two quick questions from me. Firstly, -- just on your effective rents for office versus market, please. Where is that sort of spread or over-renting at the moment?

So the spreads are improving, Solomon. So for our portfolio, the spread is done on a phase basis, 5.1%, and that was 2.3% in FY '24. On an effective basis, the spreads are negative 10 and in FY '24, that was negative 16%. And so the effect of that is that the effective over readiness of the portfolio is improving. And so it's come into down from 18% this time last year. And just to drill into that a little bit further with Sydney and CBD, the overrenting is now just 2%, whereas that was 10% at the end of last year.

Makes sense. And secondly, just on the redemption queue. I was a bit surprised this year at consistent build despite, I guess, what looks like you're facilitating about $1 billion of redemptions in the second half. So it sort of implies that there's been another $1 billion of fresh redemption requests coming through in the past 6 months, which isn't insignificant. Is that right? And provide just some color around that, please?

Sure. I think with elevated interest rates, core strategies have been under pressure. And as a result, some of our investors have been seeking liquidity. I mean for us, something that we really strive to do and we're proud of. It's a key strength of ours and meeting those redemptions is something that will set us up well for the future as the market turns, and it has turned, and we're starting to see valuations turn. We're starting to see secondary unit sales improve. They were about $100 million last year. They were about $450 million this year. and the buyers and sellers are getting closer together in terms of pricing. So we're seeing improvements, but certainly, there is -- there has been elevated interest rates, which have meant that some people are seeing that liquidity.

Well, I think that's the -- and all of the questions, guys. So thank you very much for your interest in the company. We look forward to catching up with many of you over the coming weeks. Have a great day.