Ad hoc: Dexus Finance Pty Limited: 2020 AGM Chair and CEO address

Dexus (ASX: DXS)

ASX release

23 October 2020

2020 AGM Chair and CEO address

Dexus releases the attached Chair and CEO address for the Dexus Annual General Meeting (AGM) which is being held today at 2.00pm (AEDT).

The full ASX release including the presentation is available on www.dexus.com

The meeting will be webcast and can be viewed by using the following link:

https://agmlive.link/DXS20

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Dexus 2020 Annual General Meeting

Chair's address

Good afternoon everyone and welcome to our 2020 Annual General Meeting. I'm Richard Sheppard, the Chair of the Board of Directors of Dexus Funds Management Limited.

I would like to begin by acknowledging the Gadigal of the Eora Nation, the traditional custodians of the land on which we are presenting from today, and we pay our respects to their Elders past, present and emerging. I would also like to extend that respect and welcome to any First Nations people who are joining our meeting today.

On behalf of the Dexus Board, I appreciate your understanding of the changes we have made to the meeting format. It is pleasing to see that Australia has made great progress in containing the spread of the virus. We have high hopes that next year we will be able to connect with you in person at our 2021 AGM.

I'll table my appointment as Chair of today's meeting and open the meeting.

I will start today's presentation by looking at the scale of our business.

Dexus is one of Australia's leading real estate groups and is a leader in the Australian office market. We have $32 billion of properties under management, $16.5 billion of which is owned directly on balance sheet with the remainder invested in office, industrial, retail and healthcare properties that are managed on behalf of our third party capital partners.

We released our 2020 Annual Report in August which is an integrated report and reinforces our focus on long-term value creation. This year, we highlighted how we are positioning for the recovery on the other side of the significant disruption caused by the global pandemic.

I won't spend too much time today discussing the result as you can read the achievements in the Annual Report and the results presentation available on our website.

Reflecting on our response to the COVID-19 pandemic.

Many of our small to medium-sized customers had their businesses impacted by the government restrictions, which affected their turnover and ability to pay rent. Our team was already proactively talking with our customers about supporting them ahead of the introduction of the government's Code of Conduct which formalised the approach for the provision of rent relief by landlords to their most impacted tenants.

The assistance we provided to our customers impacted our financial result for the year.

To preserve capital, the management team implemented cost reduction initiatives across the group including freezing recruitment and non-essential consultancy spend, as well as temporary reductions in remuneration levels for the Board, the CEO and other executives over a three-month period.

The value of our portfolio has been reinforced by asset recycling.

Lastly, prior to the onset of COVID-19 our business was in strong shape and we upgraded guidance for distribution per security growth to circa 5.5%. However, due to the challenging operating environment, we withdrew our FY20 distribution guidance but were able to provide revised guidance in June for a distribution that was consistent with FY19 - and we delivered on that guidance.

From a capital management perspective, as a Board we have been very focused on ensuring that Dexus's financial strength is maintained to deal with the current environment. Since March we have enhanced our liquidity and sourced $650 million of debt funding.

Our proforma gearing level at 30 June remained low at 24.3%, which is well below our target range of 30-40%, so in summary, Dexus is in a strong financial position.

Our financial strength provides us with the funding needed for committed projects in the development pipeline and also for future opportunities where we see an efficient use of our capital and the ability to drive higher returns.

When the pandemic took hold, our number one priority was the health, safety and wellbeing of our people and the people in our buildings.

When the government restrictions started to ease in July 2020, our team ensured that the buildings we manage had detailed COVID-Safe plans in place in order to help people to return to our buildings in a safe manner.

We followed the government guidelines for our building operations, and also engaged the services of independent consultants and a health expert to review our processes for the common areas like food courts and end-of-trip bathrooms to ensure their safe operation.

On behalf of the entire Board, I would like to acknowledge the extraordinary effort by Management and all of our Dexus employees involved in working with our customers, preparing our buildings and reducing the financial impact to the group.

Over the past six months, we have seen workforces globally forced to work from home. We believe that the office workplace plays a crucial role in driving business productivity, and ultimately, the financial success of a business.

Customer surveys have revealed there are three key areas where the physical office can positively impact business performance - facilitating collaboration; fostering culture; and providing learning and personal growth opportunities. It is clear that these activities are best done face-to-face in the office.

You have probably seen media reports reflecting on surveys that many people have enjoyed working from home and would like to continue doing that. We have proven that we can all work from home, but that is not the point.

We believe, notwithstanding the technology we have today, that people are at their most productive in their workplaces. Clients get better service; people learn more and things get done more effectively. As a company director, I have seen boards work more effectively when they meet in one room. That is one of the reasons why cities and urbanisation have grown over the last century.

Those companies that are successful in getting their people back to their offices as government restrictions are eased, will obtain a sustained competitive advantage in this environment.

Governments around the world have responded to the COVID-19 crisis through a combination of health measures, business shutdowns and unprecedented fiscal stimulus. There has been, to date, limited community discussion and understanding as to how we will pay for this. We cannot indefinitely sustain large deficits and increased debt, and the cost will come eventually through a combination of reduced government services, higher taxes on future generations, or if governments fund the deficits by printing money, through higher inflation down the track.

How is this relevant to commercial real estate? The answer is that the longer the country takes to get back to normal levels of business, the higher these costs will be.

And so it's important to reflect on the consequences of not having people and workforces return to CBDs.

The major cities across Australia generate the majority of GDP in this country and support hundreds of thousands of businesses and millions of jobs.

The longer the delay in people returning to productive work, the greater will be the impact on people's lives, on career development particularly for younger people, and on the government's ability to provide the services and support that people require.

The impacts of September 11 were severe for Manhattan in 2001, and people thought that they would never again go on a plane or enter a skyscraper. That was not the case and New York has thrived over the past two decades.

We are encouraged by the recent government directives for its public sector employees to return to their office workplaces. This will assist in getting the economy going, and we have seen a steady rise in the physical occupancy of our buildings in line with these government directives.

Looking at our result for the year, and despite the challenges caused by the pandemic having an adverse impact on our financial result and share price, we continued to progress our strategic objectives and deliver some solid operational achievements for the year.

Importantly as I have mentioned, we delivered a full year distribution that was in line with last year.

We strengthened our relationships with our funds management partners, through office, industrial and healthcare property transactions and developments, delivering on their investment objectives and launching the first in a series of new unlisted opportunity funds.

We've made great progress on our city-shaping development projects located in Sydney, Melbourne and Brisbane. And we improved the portfolio composition through selling non-core and lower returning assets.

Environmental, Social and Governance or ESG factors continue to be a key focus, with the expectation for businesses to demonstrate they are being responsible global corporate citizens.

At Dexus, ESG is integral to our business operations, and despite the disruption during the year we continued to perform strongly in this space.

We spent an enormous amount of time working with our most impacted small to medium sized customers, which included providing rent relief to them. As one of Australia's largest property owners and as a responsible business, we did not access the JobKeeper government subsidy.

Our position as an employer of choice for gender equality was maintained for the second year running.

And this year we were recognised by the Dow Jones Sustainability Indices as the global industry leader across all real estate companies. We have made solid progress from an environmental perspective including our commitment to net zero emissions by 2030, as well as achieving our targets relating to energy and water use across our office portfolio. Further details of our achievements in these important areas are outlined in our Sustainability Report, which is available on our website.

I would like to finish my address by talking about distributions.

We have a solid track record of delivering distributions and understand the importance of paying sustainable distributions to our investors. In FY20, our full year distribution was 50.3 cents per security.

On Wednesday this week, we announced our FY21 guidance as a result of the strength of rent collections and further clarity regarding the extensions related to the Code of Conduct, but this is subject to there being no reinstatement of any major lockdowns or unforeseen circumstances.

In FY21 we expect a full year distribution per security amount that is consistent with FY20.

CEO's address

Thanks Richard and good afternoon everyone.

It has been a busy first quarter for the business. Despite the subdued economic conditions, it is pleasing to see signs of life and activity continuing in our core markets.

Occupancy remained high across our office and industrial portfolios, where we leased over 141,000 square metres of space across 88 transactions. Our team's focus on rent collections resulted in 94% of rents being collected and we completed our development at 180 Flinders Street in Melbourne, along with the remaining hotel component at 80 Collins Street.

We also continued asset recycling, including progressing the sale of Grosvenor Place in Sydney where a preferred bidder is currently in exclusive due diligence.

Looking closely at our $16.5 billion property portfolio, our latest results show continued solid performance across the various metrics.

Over the past few months we've seen office leasing enquiry levels in Brisbane and Sydney continue to recover, with our portfolio occupancy remaining high versus the market, at 95.4% for office and 94.8% for industrial. Across both our office and industrial portfolios, the Weighted Average Lease Expiry has increased slightly or been maintained, and for office leasing completed during the quarter we have seen face rents holding across Sydney and Melbourne.

Our funds management business continues to expand. It includes our flagship Dexus Wholesale Property Fund which invests across the office, industrial and retail sectors and the Healthcare Wholesale Property Fund which we established a few years ago. More recently, we launched the first in a series of funds that will invest in opportunities where we can add value through leveraging our skills and expertise to enhance returns. This area of the business is one where we expect to continue to grow.

Office is an asset class that has proven to be resilient through the cycle.

Once we are through this pandemic-induced recession, we expect demand for office space to continue to expand. Offices will always have a core role to play for business in the development of corporate culture, collaboration and innovation.

Employment growth drives office markets, and over the past decade around 5,000 white collar jobs were added to the Sydney CBD every year, with an additional 38,000 jobs created across broader Sydney.

This growth will resume post the recession, as business recovers and confidence returns to the market.

In August, we set five immediate priorities which we have already progressed.

• We are helping our customers return to their workplaces safely - so they can drive their productivity and get the economy moving.
• We have progressed assets sales, enabling us to reinvest into opportunities that we believe will drive stronger investor returns over the long term.
• We expanded our funds management business with the launch of a new fund.
• Together with our workplace consultancy business, we are at the forefront of the future of workspace and are working with our customers on their future needs.
• And we continue to progress planning for our city shaping developments, to make sure we can activate projects when the time is right

To conclude, we continue to operate in an uncertain environment with no vaccine and the economy in recession, and we still face significant challenges over the coming year, as a result of border closures and government restrictions.

While the economy will inevitably recover, the timing of the recovery remains unknown.

In this environment, we have a committed Management team and Board that have a lot of experience in responding to and moving through previous downturns.

We are focused on leasing and maintaining occupancy levels, which is supported by our high-quality portfolio and diverse customer base.

We also have multiple income streams from our expanding Funds Management platform and trading profits, and our business is underpinned by our strong balance sheet.

Before passing back to Richard, I would like to thank my fellow Directors and the Dexus team for their commitment and contribution over the past 12 months, and you, our investors, for your continued support.

ENDS

Authorised by the Board of Dexus Funds Management Limited

 

For further information please contact:

Investors Jessica Johns Senior Manager, Investor Relations +61 2 9017 1368 +61 427 706 994 jessica.johns@dexus.com

Media Louise Murray Senior Manager, Corporate Communications +61 2 9017 1446 +61 403 260 754 louise.murray@dexus.com