DEXUS PROPERTY GROUP Audio Webcast

DEXUS PROPERTY GROUP (DXS)

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DEXUS PROPERTY GROUP (DXS) Events

Company (Stock Code)	Date/Time	Event	Timezone: Australia/NSW
DEXUS PROPERTY GROUP (DXS)	Wed, 18 Feb 2009 09:30AM	DXS - Half Year Results - Victor Hoog Antink, CEO, Craig Mitchell, CFO; Louise Martin, Head of Office; Andrew Whiteside, Head of Industrial; Paul Say, Head of Corporate Development
DEXUS PROPERTY GROUP (DXS)	Wed, 29 Oct 2008 12:15PM	DXS - 2008 Annual General Meeting - Mr Christopher Beare, Chairman, Mr Victor Hoog Antink, CEO
DEXUS PROPERTY GROUP (DXS)	Thu, 21 Aug 2008 10:30AM	DXS - Full Year Results - Victor Hoog Antink, CEO; Craig Mitchell, CFO; Louise Martin, Head of Office; Andrew Whiteside, Head of Industrial; Paul Say, Head of Corporate Development
DEXUS PROPERTY GROUP (DXS)	Thu, 21 Feb 2008 09:30AM	[DRT] DRT - 2008 Half Year Results - Mr Victor Hoog Antink, CEO; Mr Craig Mitchell, CFO; Mr Ben Lehmann, Fund Manager
DEXUS PROPERTY GROUP (DXS)	Tue, 28 Aug 2007 10:30AM	[DRT] DRT - 2007 Full Year Results - Mr Victor Hoog Antink, CEO
DEXUS PROPERTY GROUP (DXS)	Tue, 27 Oct 2009 11:00PM	Annual General Meeting
DEXUS PROPERTY GROUP (DXS)	Mon, 17 Aug 2009	Full Year Results
DEXUS PROPERTY GROUP (DXS)	Fri, 27 Feb 2009	Date Payable
DEXUS PROPERTY GROUP (DXS)	Tue, 17 Feb 2009 11:00PM	Interim Results
DEXUS PROPERTY GROUP (DXS)	Wed, 31 Dec 2008	Record Date
DEXUS PROPERTY GROUP (DXS)	Tue, 23 Dec 2008	Ex Div Date
DEXUS PROPERTY GROUP (DXS)	Wed, 29 Oct 2008 10:00AM	Annual General Meeting Heritage Ballroom, Westin Hotel, Level 6, No. 1 Martin Place, Sydney
DEXUS PROPERTY GROUP (DXS)	Fri, 29 Aug 2008	Date Payable
DEXUS PROPERTY GROUP (DXS)	Mon, 30 Jun 2008	Record Date
DEXUS PROPERTY GROUP (DXS)	Tue, 24 Jun 2008	Ex Div Date
DEXUS PROPERTY GROUP (DXS)	Thu, 28 Feb 2008 11:00PM	Date Payable
DEXUS PROPERTY GROUP (DXS)	Thu, 28 Feb 2008 11:00PM	[DRT] Date Payable
DEXUS PROPERTY GROUP (DXS)	Wed, 20 Feb 2008 11:00PM	[DRT] Interim Results
DEXUS PROPERTY GROUP (DXS)	Wed, 20 Feb 2008 11:00PM	Interim Results
DEXUS PROPERTY GROUP (DXS)	Sun, 30 Dec 2007 11:00PM	Record Date
DEXUS PROPERTY GROUP (DXS)	Sun, 30 Dec 2007 11:00PM	[DRT] Record Date
DEXUS PROPERTY GROUP (DXS)	Thu, 20 Dec 2007 11:00PM	Ex Div Date
DEXUS PROPERTY GROUP (DXS)	Thu, 20 Dec 2007 11:00PM	[DRT] Ex Div Date
DEXUS PROPERTY GROUP (DXS)	Wed, 31 Oct 2007 09:30AM	[DRT] Annual General Meeting Westin Hotel, Level 6, No 1 Martin Place Sydney NSW 2000
DEXUS PROPERTY GROUP (DXS)	Wed, 29 Aug 2007	[DRT] Date Payable
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DEXUS PROPERTY GROUP (DXS)

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VICTOR HOOG ANTINK, CEO; CRAIG MITCHELL, CFO; LOUISE MARTIN, HEAD OF OFFICE; ANDREW WHITESIDE, HEAD OF INDUSTRIAL; PAUL SAY, HEAD OF CORPORATE DEVELOPMENT OF DEXUS PROPERTY GROUP (DXS)

“Full Year Results”

http://www.brr.com.au/event/49581

 

THURSDAY, AUGUST 21, 2008, 10:30 AM.

 

            DXS     Good morning ladies and gentlemen, and welcome to this the first annual

10                    results presentation of the newly named Dexus Property Group, the annual results for 2008. I’m Victor Hoog Antink and I’m the CEO. With me today in the presentation, Craig Mitchell, our CFO; Louise Martin, Head of Office; Andrew Whiteside, Head of Industrial; and Paul Say, Head of Corporate Development.

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                        Prior to starting, a quick comment on the market, the credit crunch started virtually a year ago and will continue for some time to create volatile financial market. Consequently, we will continue to see increase interest rate spread and reduced funding avenues. During this year, however, property

20                    fundamentals have remained strong. A look back to the last major drop in the property market in 1991 and comparing interest rate stand of roughly 18% versus today 8%, an employment of close to 10% versus today just under 5, at that stage there was the development pipeline in the Sydney and Melbourne Office markets that equated to approximately 30% of the built

25                    stock in those two markets and that took about four years to work through. The equivalent pipeline today is approaching 10%, a significant portion of which is pre-committed. Notwithstanding, property values have been affected and will continue to be affected, but the highest quality property will be the one could come through the best. What this market will reinforce is what has

30                    always been important to us at Dexus, active property and active capital management, not only is management a new black; it has always been the core creation of value in the property world.

 

                        The results, stable operating earnings $498 million resulting in a distribution

35                    of 11.9 cents per unit, an increase of 5.3% as of last year, and during this period, we’ve reduced that gearing down to 33%. Operationally, we have like-for-like income growth of 4.5%. We have a strong leasing activity in excess of 800,000 meters. A portfolio occupancy is running approximately 94% and a duration is 4.8 years.

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                        During the year, we sold retail portfolio of over $900 million consistent with a strategy to focus on office and industrial. This also strengthened our balance sheet and further built on a third party platform. We acquired the 20% interest from CalWest in our joint venture, thus giving us the flexibility to reposition

45                    that portfolio. We acquired 50% of our management company from Deutsche Bank thus giving us the ability to fully internalize our management platform and fully align investor’s interest. And finally, we are making the biggest commitment of anyone in the country to six-star development. We have got major projects under way in Eastern Brisbane and Sydney. So today, I’ll talk about the group, Craig will talk about financials, Louise office, Andrew Industrial, Paul international, and I’ll conclude by talking about the third party as well as wrapping and giving guidance.

 

5                      So, what is our business today? We have the owner, manager and developer of over $15 billion of assets, two-thirds of that is owned assets, one-third of that is held on the half of third party platforms. As a group, we’re responsible for not only the largest, but I would suggest the highest quality office portfolio in Australia. As part of our search for even greater performance, we are

10                    further internalizing our property management function which Louise will talk about shortly. In industrial, we have a well diverse flat portfolio with major logistics opportunities in each of the Sydney and Melbourne market. In retail, where we have a full service capability, we are responsible for over $3.5 billion of assets, predominantly held on behalf of third party earnings.

15                    Internationally, we own over $2 billion of assets of which approximately 85% is in United States. Over time, we will look to reduce the number of submarkets in which we invest in the United States and to increase the scale in each of those submarkets to create further value for investors. This is now easier given in our access to capital gains tax rollover release. In Europe, we

20                    are going to look at the options we have to reposition the portfolio over the medium term. At Dexus, we have been pursuing sustainability features for our portfolio for nearly 10 years. Not only are we the owner of the first five star building in Australia, 30 The Bond, but our most recent flagship developments in Brisbane and Sydney are designed to six star specifications.

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                        Management, I recently expanded my executive team; all of whom are here today and they have proven specialist experience combined with  demonstrable leadership capability. I’ll now hand over to Craig, Our CFO.

 

30        DXS     Good morning. Let’s begin by looking at the financial profile statements. Bring the slide to the top, left to right. Total assets (inaudible) (00:07:03) has increased 45% to $9.3 billion this June. NTA per security has also increased by 45% to  $.77 at 30 June. However, since December, NTA reduced from $1.90 down 10 cents. This is the result of two factors. Firstly, cap rate has

35                    dropped in six months by 40 basis points causing the valuation to decline by $155 million in the last six months and secondly, as a result of purchasing the remaining major rights from Deutsche Bank, an intangible asset was created which is excluded from this calculation. If you added intangible back, $1.77 increases to $1.84 per security. Gearing during the same time frame is

40                    reduced from 44% to 33.2%, and while increasing NTA, we’re reducing gearing. Our distribution per security has increased by compounded annual growth rate at the last four years of 4.3%, and the last 12 months, it is increased by 5.3% to 11.9.

 

45                    Now, let’s turn to the composition of this earning. Over $1billion of asset sale were settled during the year reducing assets from the balance sheet by 10%. However, operating earning is reduced by only 3% to $498 million. To understand the composition of the earnings, let’s go to the top of the slide. Office headline earning is reduced by 5%. This is despite strong like-for-like growth of 4.4%, this decline is the result of the 50% sale of The Zenith in Chatswood in 2007 and the vacating tenants of the Bligh 3 properties in preparation for re-development. And thus headline earnings dropped 7% driven by like-for-like growth of 4.5% along with increased earning

5                      contribution from US acquisition. Retail input down as the direct result of 950 million portfolio sale to a wholesale fund in October last year. Development gains represent the 50% sale of the Coles facility at Laverton and management income. Management income represents the proportion share of the funds management business. In 2007, we owned 50% of this business

10                    for 12 months. This year, we owned 15% eight months and post-internalization 100% for the last four months a year. Net finance costs are down as a result of active disposal and subsequent repayment of debt.  All of these have resulted in distribution of 355 million up from 325 million last year or 5.3% per unit basis. I refer you to the appendices for further details

15                    including your reconciliations from operating cash by two distributions including maintenance CAPEX and leasing CAPEX.

 

                        Our earnings are right primarily from our properties at 30 June beyond balance sheet with 8.9 billion, 52% from office, 45% from industrial and 3%

20                    from retail. The 3% represents the 50% share of Whitford Shopping Centre. This balance sheet composition drives our operating earnings. During the period, 4% of the earnings was derived from funds management and development. The remaining 96.6% were derived from net property income which provides stable operating cash flow and 75% of net property income

25                    was derived from real state located domestically.

 

                        Moving to revaluation, capitalization rates have suffered for the last six months. Our current revaluation policy is to independently revalue one-third of portfolio annually. Given the current uncertainty in property cycles, we

30                    decided to independently revalue 75% of our portfolio over the last 12 months which have included the entire international portfolio at June. Since December, cap rates have softened by 40 basis points and a weighted average cap rate stands at 6.7%. However, over the 12 months to June, the portfolio revaluation increased 2% or 184 million. We do, however, forecast

35                    through the cap rate softening in the coming period. Further details on revaluation and cap rate can be found in the appendices to this presentation.

 

                        Turning now to capital management. We have robust capital management practices. This has always been a key focus for the group. This process

40                    ensure we will diversify funding sources. As you see from the pie chart on the right, Dexus obtained some debts from five different sources. Having multiple funding sources is especially important in the current environment, particularly when you’re seeing some funding sources effectively (inaudible) (00:12:53) such as the CMBS market today, and it is a difficult time to open

45                    up new sources of debt. Our process also ensures that the capital structure be transparent and consistent. We’ve no off balance sheet debt or look through gearing. Majority of our facilities aren’t secured and any secured debt is limited to the underlying asset. Finally, our refinancing risk is spread over nine years.

 

                        Moving specifically to debt refinancing, a proactive debt managing process has placed Dexus in a very strong position. We now have no debt maturities in 2000 calendar year which had totalled 800 million; 500 million was

5                      refinanced 11 months early for duration of five-and-a-half years; 300 million was refinanced six months early for duration of 3.8 years, and looking forward to our debt maturity in 2009, we have 580 million or 68% of our total debt expiring by April next year; 250 million or 40% of this maturity is now credit‑approved and we are in documentation for a duration of three years.

10                    This has been completed eight months ahead of expiry and we advance from the balance. As of 30 June, we have committed undrawn facilities of 500 million, and the group sits well with its key debt covenants. Gearing at 33.2% versus 55%, interest cover at 3x versus cover at 2x. Since cycling, we have averaged 3x, and our priority debt is a low 9% versus coverage of 30%.

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                        While being (inaudible) (00:14:52) by debt risk metrics, I’d like to draw your attention to the duration of debt. Duration is steady at 3 years. This is despite tough credit condition. Interest hedge duration has increased slightly to a conservative 6.3 years and S&P has reaffirmed our BBB+ rating as recently

20                    as June this year. We have held this rating since cycling.

 

                        Now turning to our distribution policy. Our policy is pay up the security to 100% of trust operating ending, pay up the security to 100% of funds management earnings. Funds management business manages core sale real

25                    estate and does not have transaction fees or promote in the earnings and our policy is to pay up to 100% of development. Victor will provide guidance for FY09 at the end of this presentation. So as you can see, we’ve delivered consistent financial returns from stable operating cash flow backed by effective capital management which places us in a strong position for the

30                    future. I would now like to hand out to Louise Martin, Head of Office.

 

            DXS     Good morning. This year saw strong performance from the office portfolio. This is the reflection of the high quality asset we own and manage. Key highlight of the year were good market growth, strong like-on-like income

35                    growth and high occupancy levels driven through active management and leasing. Coupled with strong portfolio of growth, we saw substantial commencement of our development pipeline.

 

                        Our portfolio of 29 assets is of the highest quality, 95% of our office buildings

40                    are premium or A-grade assets. The portfolio is also strategically located, 70% of our assets are in the Sydney market and 85% of these are in the CBD. It is the highest quality and best located of this portfolio in Australia and this will serve as well with changing market condition.

 

45                    Looking to the market over the last year. Over last year, we’ve seen solid market rental growth from all major offices, office markets, coupled with historically high occupancy rate. Looking forward, we expect some easing in the leasing market in some areas due to falling business confidence. However, from the previous slide, you saw we were heavily weighted to the Sydney market. Due to the very low amount of supply coming on in Sydney, we see vacancy remaining relatively high over the next three years and still expect rental growth in this market. We also anticipate that our other major markets of Perth and Melbourne to be resilient in the year ahead. Of course,

5                      we’re still benefiting from the resource firm, however, we do think that the growth will be moderate over the next year or two. As Victor has said, in tough conditions, prime quality assets are expected to outperform secondary assets. It’s easy just to maintain occupancy and hedge value, and we have quality assets in resilient markets.

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                        Looking at the portfolio fundamentals, solid like on like income growth of 4.4%, occupancy levels at a healthy 98%. The portfolio is under-rented by 13% and we have good exposure to market growth. Exposure to the market over the next two years is 42% with 30% in this coming year, and this

15                    exposure is primarily in Sydney and in Perth. We also have seen a softening in cap rate over the year. Our average weighted cap rate is 6.4 which reflects a decrease of only 33 basis points. However, overall, the capital value has increased to 167 billion due to the income growth we saw in the assets, so overall, a good portfolio performance this year.

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                        FY08 was an active year in leasing with 93,000 square meters of space being leased. This is equivalent of 16% of our portfolio. Of the 93,000 square meters, 70% was on the existing portfolio and 30% on development projects. The retention rate on the portfolio was 72% and our average rental increase

25                    over passing rent on renewals and new leases was 6.9%, and as you can see from the slide, the team put away some major deals during the year. Our focus in FY09 is on the vacancies of 2% and expiries of 7%. Since June, terms have been great on a number of deals reducing our exposure on vacancies and expiries from the total of 9% to 7.5%. Going forward, our

30                    income is stable and we have access to reversionary income.

 

                        The year saw the commencement of two major developments. Construction has commenced at 123 Albert Street in Brisbane with a pre-commitment to Rio Tinto of over 67%. Completion is due at the end of 2010. At 1 Bligh Street

35                    here in Sydney, demolition has commenced and negotiations are well under way with major tenants. Completion is due April 2011. We’ve reviewed the pipeline of developments and the timing of the commencement of any other developments will be a function of market conditions and tenant pre-commitment. At 105 Philip Street, Parramatta we have a DA in place for

40                    20,000 square meter office development and are actively seeking tenant pre-commitment on that development. At Wicks Road, the team is master‑planning and preparing development applications for campus-style development. We’ll be showing a prudent approach to the commencement of either of these projects.

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                        Our focus in 2009 is to continue to enhance our portfolio performance through our integrated model of property, assets, and development management. We will deliver excellence in property management by extending our internalized property management model to assets in Australia. At the moment, 13 of our assets are managed by our internal property management team and this will be extended to another 10 assets over the next 12 months. Through this model, we’ll get even closer to our tenants, delivering the service they require while operating our assets in an efficient manner. Going forward, obviously

5                      big focus is on leasing this year. We’ll also continue to implement our sustainability program. We’ve established writings and measurement systems on our assets and on the process in developing road maps whereby we can improve the resource consumption profile of our assets over the next three years, and we’re focused on delivering the developments that are on the way,

10                    and as I see, we’ll time the commencement of future developments to market conditions.

 

                        So in summary, you can see in the office sector we have strong performance underpinned by quality assets. We have an active management approach to

15                    that portfolio by an experienced team, and we have a prudent approach to development. We are well-positioned for the future in the office sector.

 

                        I’ll now hand you over to Andrew Whiteside, Head of Industrial.

 

20        DXS     The industrial story for 2008 is all about risk adjusted performance driven by solid portfolio fundamentals. We have a high-quality portfolio which we’ve built over time. It’s highly diversified by geographically and by product type spreading investment risk. Our assets are strategically located in key industrial submarkets with the diverse customer base. We have some 300

25                    tenants in over 370 tenancy. Our active approach to management and leasing has contributed to results this year. We have high occupancy and strong tenure. We’ve delivered solid growth and we have momentum from the development book which I’ll talk about later. The inherent quality and diversification of this portfolio holds us in good stead for this part of the cycle

30                    and for future growth.

 

                        The overall property market is slowing and take-up in ’09 is expected to ease, although at the moment volatility in the property sector is not yet reflected in  the behaviour of our customers. They are still paying rent with no

35                    delinquency. In fact, we are seeing tenants locking in their tenure.

 

                        Competitors are putting developments on hold primarily because of balance sheet pressure and uncertainty around end values. However, there is preleasing inquiry out there, particularly from logistics businesses, who are

40                    under more pressure than ever to seek supply chain efficiencies and increase their EBIT. There is a strong historic relationship between take-up and supply in the industrial market. The graph illustrates this trend over the past 10 years and shows the combined take-up in the key markets of Western Sydney and Melbourne. There is also a correlation between economic growth and the

45                    performance of industrial investments over time. The top 10 tenants in our portfolio operating key sectors of the economy, nationally and internationally, and they support 30% of our rent roll. This diversification and the quality of that portfolio means we are well positioned for the current cycles with in-built flexibility to withstand volatility going forward.

 

                        I’m looking at our portfolio KPIs. Our net property income was up 4.4%, performance was underpinned by 2.3$ like-for-like growth, and our projects contributed $7.8 million to NPI. A strong rent review structure delivered 4%

5                      growth, the highest coming from our multi-tenant industrial estate at nearly 5%. We have high occupancy at almost 99% and strong retention rate at 78%. Weighted average cap rate soften from 7% in the quarter to 7.5 % this year, but the portfolio value was up $86 million, and this included a net revaluation increase of $17 million predominantly from market growth.

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                        Asset values were down in the northern suburbs of Sydney but up in Melbourne, Brisbane, and Perth. The balance for the Sydney was up and  down. Forty-five percent of the portfolio was valued externally.

 

15                    As you can see, we’ve been very busy this year, 78% of the space was renewed, and of the balance, 30% was new space that we developed. Leasing activity delivered 4.2% growth made up of 68 renews at 3.4% and 37 new leases for recaptured space at 7.4% with an average term of three years and incentives below 5%. There are a number of major deals done all on a

20                    long-term basis contributing to the increased weighted average lease expiries of 4.4 years, over 5 years by area.

 

                        And looking at our leasing task for 2009, we have 1K vacancy in South Sydney, a 9,000-square meter warehouse we’re looking to reposition. This

25                    represents 60% of our current vacancy. In December this year, we have 1K expiry, a 36,000-square meter facility at Knoxville in Southeast Melbourne. We’re well advanced in renewal discussions with the seating tenant. The balance is evenly spread throughout Sydney and to give you some colour if you exclude Knoxville and South Sydney, less than 5% of the budgeted

30                    income this year is exposed to vacancy and expiry. Of these, 23% is already locked away.

 

                        With the acquisition of Greystanes in December, we now have a presence in the major logistics precinct of Melbourne and Sydney. This year in

35                    Melbourne, we completed a 45,000-square meter facility for Fosters, started and finished projects with Best Bar and Orica, and sold down 50% of the Coles Chilled Distribution Centre for a profit. We also established a small project at Redwood Gardens near Melbourne Airport. These projects are now online and making a contribution to our portfolio diversification earnings.

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                        As I mentioned, we are seeing steady prelease inquiry from larger national tenants. Both of these sites have proven appeal. They’re anchored by strategic infrastructure and major growth corridors, and we now have a proven project track record and will be leveraging this brand in Sydney. We

45                    have a dedicated team on each projects and between them they have 80 hectares or nearly four-year supply developable land stock, and they’re actively engaged in their markets today.

 

                        Turning to Greystanes, this is a strategic site. With less than 50 hectares, it’s probably the most marketable industrial land available in Sydney over the next few years. It’s located inboard of the M7 and right on the N4 which is a preferred location for businesses with metropolitan distribution. We’re buying

5                      at the risks. The planning is in place. We know what’s in the ground, the road to there and it’s already fully serviced – a rare commodity for competing in global sites in Western Sydney. We also have certainty. (inaudible) (00:29:39) is delivering the land in stages under performance-based VNC contract. The project already includes significant ASA features. We’ve agreed to recycle up

10                    to 150 megalitres of storm and ground water from the site, and these will be used specifically to water the Cumberland golf course and various parts in the city of Holroyd.

 

                        As you can see from the slide, the development includes a mix of products.

15                    The Area A on the slide, or as I like to say green boxes will be up to 100,000 square meters of modern distribution changes, and we’re already putting proposals to major users now. Just underneath that, the yellow boxes, Area B on the slide, we’ll be developing a multi-tenant industrial state with several street frontages and unit sizes ranging from 5,000 to 15,000 square meters.

20                    This will be developed in stages predominantly on a pre-committed basis and with sustainable design initiatives. And finally, below that in the Area C on the slide, there’ll be room for smaller businesses and we can accommodate land fills of less than a hectare. Our strategy is to offer a premium product to the market and directly to our tenant base. It’s finite at only 48 hectares. There’s

25                    a flexible range of accommodation on offer and importantly certainty of delivery, particularly infrastructure and services as demanded by our customers.

 

                        As Victor said, management is the new block. If 2008 was all about delivering

30                    risk-adjusted performance, then 2009 is going to be more of the same. As you would expect, we have a renewed focus from the bottom up. My team is experienced in estate and development management, and we’ll continue to drive income growth from within our diversified portfolio, working productively with our tenant base when we can. We’ll take advantage of our strong relative

35                    position in the market to seek a secured tenant, recycle capital, and strengthen the capability of our team. The quality and scale of our existing stock gives us future capacity. We have two competitive development sites that are capable of delivering project with certainty to the new tenant. We’re in great shape and open for business.

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                        And now I’d like to hand it over to Paul Say, our Head of Corporate Development.

 

            DXS     Our international industrial portfolio is an important part of the Dexus

45                    business. Today I would like to cover our North American and European markets although focused more on the United State as this represents 85% of our international exposure. Overall, the portfolio is in good shape with over 100 buildings, all institutional grade, all prime quality. They’re well diversified across a variety of markets and of different scale and size. In 2008, we’ve delivered value, primarily through leasing. We’ve delivered on our project. I’ll tell you about our projects and our developments, and we’ve created strategic flexibility through the acquisition of the Calwest joint venture and also the buy back of the bank.

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                        Looking now at the North American industrial market, we’re seeing consistent demand for quality assets in prime location, however, the tendency to be come cautious, delaying decisions and seeking greater flexibility in releases. New supply is flowing, however, vacancy rate is stable. While imports have

10                    declined, the low US dollar is clearly having a positive impact on export. And through the Long Beach port, we saw the last quarter an 8% increase in throughput. This is being quite position impact particularly for the Western State industrial locations. Despite weak economic sentiment, the mood on the ground, particularly in stock markets has been very positive.

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                        In 2008, we saw like-for-like NVA growth of over 7%. Roughly 60% of this was from income and 40% was leasing vacant space. Leading indicators such as the risks are low and within historic guideline. A weighted average lease expiry profile increased to just under four years, primarily as a result of

20                    the acquisition of the three Whirlpool assets.

 

                        As Craig mentioned, valuations for the US portfolio were down by 3.3%. This reflected a 45-basis point softening at a cap rate of 6.9%. Notably, this is now some 300 basis points above the US Treasury rate. In fact, Cushman &

25                    Wakefield, when valuing the portfolio commented specifically on the quality of the portfolio and the location to the assets.

 

                        As mentioned earlier, 2008 saw a strong leasing performance. We leased 385,000 square meters, roughly 15% of the whole portfolio. Notably, 74%

30                    retention of existing tenants was consistent with the previous year. Vacancy was up about 3%. However, this was primarily due to the acquisition of value add portfolios in Chicago late last year and San Antonio last mid-year. Harrisburg and San Antonio represent about 35% of our vacancy and we’re getting very close on leasing those. In fact, I was in the States last week and

35                    the team told me that they’re to continue lease on the 16,000 square meter cornerstone asset in San Antonio for 10-year period.

 

                        The 2009 has been a great start in terms of tenant retention. I’m pleased to announce that SAVVIS in Sterling, Virginia have renewed for 10 years their

40                    existing lease at over 100% increase in rate. This reflects a net $1.7 million increase per annum in NVA, a great start for our like-for-like growth for the year. For further (inaudible) (00:36:17) this year, we exchanged contract on the Memphis building where Reebok were due to release in December this year. Settlement is due in the next month.

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                        In terms of development, we have limited active project underway. Summer Oaks is completed. Atlantic Corporate Park will be finished later this month. Both are on time on the budget and the team is working closely with a number of tenants, and a potential land to occupy for Atlantic Corporate Park. In San Antonio, we’re underway with four of our nine projects and in discussion with our joint venture partner about the staging for the balance of the development.

 

5                      As mentioned, in the half year, the Whirlpool program will complete once we’re settled on the Seattle, Ohio, and Atlantic assets over the next 18 months.  We will not be starting any new projects, however, maintaining a close relationship with Whirlpool as a major tenant in our US portfolio.

 

10                    European industrial market continued to be challenging. We’re seeing increased demand for logistic centres particularly around the Eastern European new trade routes. New supply is up and putting great pressure on secondary assets through rents and vacancy. Weak sentiment continues to put pressure on growth.

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                        A small part of our overall portfolio, we’re disappointed with the performance of our European assets. Jones Lang Lasalle value down to 12.5%. The French assets continue to be stressed, particularly as a result of losing (inaudible) (00:38:15) logistics from the (inaudible) on assets in March of this

20                    year. However, the German portfolio is holding up well and again arrears are stable.

 

                        As explained by Victor, international diversification is an important part of the Dexus strategy. In 2009, we will continue our focus on adding value and

25                    leasing. This means stabilizing the European portfolio in taking the best way we can leverage our capitals in this market. In the US, we’re planning a strategic repositioning of the portfolio in a few number of market. To this end, our research team and REIT are working closely to identify the most attractive market and the best timing for us to transition.

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                        In conclusion, replace without performance through 2008, the team is working well, and with the quality of the asset, we’re confident that we’ll meet the challenges of 2009.

 

35        DXS     Our third party funds increased by approximately 40% this year to $6.4 billion, a significant portion of this increase was due to the acquisition of the retail portfolio supported by an $800 million capital raising. What was particularly pleasing about the capital raising is the new investors that we have obtained through these projects including those from North America, Europe and the

40                    Middle East. As you know, we have no co-investments in our funds and debt is a source of funding for less than 10% of total portfolio values.

 

                        Our funds are primarily falling into two categories, our $3 billion wholesale fund and $3 billion in our two mandates, STC and AXA. AXA announced

45                    earlier this week that they proposed to seek a compliance listing of the $1 billion bond to which we act as the asset manager and we have been advised that they have no plans to change the management arrangements offer.

 

                        In summary, our vision is clear. We are focusing on providing best of breed service excellence in the office and industrial sectors in Australia and reducing the number of individual markets in which we invest internationally to give greatest scale. We have one of the highest quality portfolios with 70%

5                      of our office portfolio located in Sydney, 96% of our earnings are stable and derived from maintaining this high quality portfolio.

 

                        We have quality developments across all sectors, 1 Bligh, 123 Albert Street, Greystanes, Laverton and we have a strong balance sheet with gearing now

10                    at 33% and a management team with specialist expertise such that we are well positioned to take advantage of the challenges ahead. So, our focus in 2009 is to do exactly what we have always been doing.

 

                        One, actively manage our portfolio, to extract value driving a high

15                    performance culture and delivering service excellence. Two, actively managing our balance sheet and continually seeking in diverse range of funding sources that give us maximum flexibility and a continued funding of our existing portfolio and in support of the acquisition of future long-term value add opportunities so that means last year’s earnings where 11.7 cents

20                    of underlying earnings and 0.2 of a cent from the realization of that asset. Similarly, with respect to the ‘09 year, I will be giving a similar type of guidance. This year, our distribution guidance will be 12.1 cent, an increase of close to 2%. Of the 12.1 cent, we will attribute approximately 0.2 to 0.3 of a cent to those activities realizing the value that we create through our

25                    development projects. I would now like to hand over for questions. In so doing, we will take questions from the floor in the first instance. If you could wait until the microphone is brought to you and please signify your name and the organization that you represent at the beginning of the question. Thank you.

30

            Q         David Burgess from Credit Suisse. Could you just expand on the CMBS’s role of April of next year? You mentioned that $250 million is done. Could you expound on what type of facility that is and what sort of margin increases we should be anticipating?

35

            DXS     The $250 million secured facility for a duration of three years. From 2008-2009, our margins increased by like 25 basis points and looking back, 12 months we were doing margins at 65 basis points. Christmas was around 80-90 basis points, April around 100-110 basis points and now (inaudible) is like

40                    150 basis points to give you a bit of colour on that.

 

            Q         How do you anticipate funding given (inaudible) (00:44:39)?

 

            DXS     We have funding in place June 2009 with no additional funding we need, we

45                    require so we are quite comfortable with that. So the faster in making it apart from the 18 million is the only refinancing because there is no additional refinancing required in our forecast. And majors and operational CAPEX included in our forecast.

 

            Q         So will you maintain your DIP given the (inaudible) (00:45:14)?

 

            DXS     At this stage, the DIP comes from a natural perspective so that being underwritten is still one year.

5

            Q         Hi I am Paul (inaudible) from Macquarie, just looking at your cash flow reconciliation on page 58 and if you will have to excuse me because I have been seeing the full set of accounts here, just wondering if those operating cash flows include asset sale proceeds as well? Or whether it is just the profit

10                    on sale?

 

            DXS     There is 374 million in operating cash flows reconciled to the operating cash flows and the statutory accounts so it does not include any active sale.

 

15        Q         Excellent and just a second question. You guys have said the maintenance CAPEX was down to $91 million. It includes leasing CAPEX as well? Last half you guys have said that it was around 25 to 50 basis points of the property portfolio that is substantially part of that, just wondering whether that was maybe just a rule of thumb or whether you would say that this is more a

20                    sustainable level of maintenance CAPEX for you guys?

 

            DXS     To point to that 25-51 for maintenance CAPEX, the 90 million 100 basis points evenly split between leasing CAPEX and maintenance CAPEX going looking forward a 100 basis points for both is consistent.

25

            Q         Alright, thank you.

 

            Q         I am Juan (inaudible) Merrill Lynch. It looks like you guys are looking to take advantage of some opportunities with the CalWest takeout in the US to

30                    maybe recycle some assets and maybe put some of that capital towards some acquisitions whether that be corporate or asset based. Where do you see your balance sheet going towards? Your target gear and range and how is that impacted by your lack of funding of the maintenance CAPEX and leasing CAPEX?

35

            DXS     One, our gearing range with SMP would count with 40-45% and we are still comfortable with that range, looking forward three to four years our gearing to internal calculation spikes is about 39% and with our development spent.

 

40        Q         Thank you, and then with regards to the Whirlpool venture, what were the, what do you calculate your IRRs to be on that with those investments and where, how did those stack up relative to your initial expectations?

 

            DXS     And with the IRRs of approximately, in the order of 7.5%, about 6.6% in terms

45                    of yield and we are very pleased the valuation has held up very well of 30 June and we are looking, the assets are looking very good in the market with three completed ones last week and it is a good portfolio, strong covenant, long leases.

 

            Q         Sean Murray with Perpetual, excuse me, Victor I was wondering if you could tell us what your arrangements are with AXA on this portfolio that is going to be listed. Do you expect a re-evaluation of that portfolio and what impact on fees for DEXUS will that have?

5

            DXS     Sean, as you know, AXA are a client of ours and so there are obviously confidentiality arrangements in respect to some of those arrangements but to try and give you some colour around the question that you have asked. Our total fee generation from the AXA portfolio in the last 12 months was

10                    marginally underforming in dollars. I would expect that in ensuing 12 months to be of a similar sort of nature. We have had no advice other than its business as usual so I do not expect or anticipate at this point in time if there is any change to that garden and it is primarily based on the asset value and there are some fees attributable to management of leases and some property

15                    management lease.

 

                        Yes, I do. I think that there are going to be re-evaluations of that sort across the board not just that in the AXA portfolio, in our portfolio and in everybody’s portfolio in the next 12 months.

20

            Q         Hi, good morning. Ralph Davies from JP Morgan. Kind of along those lines, just -- it looks like in terms of selldown into third party funds, but that is kind of slowed down quite a bit -- I am wondering given AXA, given developments in the market, have your expectations about selldown into third party funds

25                    changed at all going forward now?

 

            DXS     Obviously this market is a more challenging market and you have got to recognize that the portfolios that we manage are of a core nature. So, we do not anticipate that there will be significant core investment by our third party

30                    platform in the next 12 months.

 

            Q         Thank you. And this is, I guess, somewhat new news for the market this morning but in the (inaudible) (00:50:41) call this morning they talked a bit about this white paper ruling in terms of treatment of deferred tax in the US

35                    and the challenges that foreign entities might have offsetting capital gains with capital losses. I was just wondering does that impact your deferred tax assumptions at all for the US portfolio?

 

            DXS     I must confess in this regard I will plead the fifth and basically say that I am

40                    not fully aware of all the tax consequences given how recently that was announced but certainly we will come back to you on it.

 

            Q         Thanks again. (inaudible) (00:51:23) from Merrill Lynch, just with regards to space could you give us just a little bit more colour on how that process is

45                    going, when do you expect to sign a lease for percentage of the building? Have your rent or incentive assumptions changed at all from your initial guidance?

 

            DXS     As I said earlier, we are in negotiations with major tenants. The leasing strategy is progressing very well. The rentals and incentives that were in the original feasibility are still very viable. It has had a lot of interest. That is probably all I can say at the moment.

5

 

            Q         Any expectations on the timing?

 

            DXS     Louise is probably precluded from saying too much more because of

10                    confidentiality agreements, but we are very, very comfortable with our investment.

 

            Q         Sorry, if I can just follow on that. (Inaudible) (0:52:19) from Macquarie again. Did you guys have builder’s league or any such thing on space similar to

15                    maybe one of your peers, enters into those agreements whereby you capitalize lost income while that building is not rented?

 

            DXS     No, we do not.

 

20        Q         All right.

 

            Q         Hi, Craig. Peter (Inaudible) (0:52:42) from DT. Just a question on slide 56. There is about 18.3 there of CAPEX and development underway. The one (inaudible) (0:52:50) that is already spent, so does that mean you are going to

25                    need (inaudible) (0:52:54) in the next three years? If so, can you just give me a profile on how you are going to draw it down roughly? 200 a year, is that correct?

 

            DXS     Can I get back to you on that? It is quite a specific question.

30

            Q         Okay.

 

            DXS     If there are no other questions, we will take questions from the phone lines now.

35

      Operator    Your first question comes from Derek Lowe from Morgan Stanley. Please ask your question.

 

            Q         Hi. How is your thinking on cap rates for the different sectors? Do you think

40                    cap rates for industrial will actually back up more compared to office and retail? Or just looking at slide 12, the cap rates in North America and European, for you portfolio, actually backed up by 40 to 60 basis points. So maybe you can share your view on this? My question was actually -- do you think cap rates for industrial would actually back up more than office and retail

45                    especially for your North American and European portfolio? We have seen, for your portfolio, cap rates moved by 40 to 60 basis points.

 

            DXS     I might comment for North America and Europe. There is a limited number of transactions that valuers can actually (inaudible) (0:54:37) opportunities having trouble coming to grips with actually where values are sitting. Having said that, they are now working more on discounted cash flow, so what they have done is they have pushed out discount rates and then let the cap rates fall. Having said that, in regard to our portfolio, the valuers did have certain

5                      evidence and there is evidence of secondary assets trading out to 8% and 8.5% cap rates, but the prime stock debt quality assets in the best locations are still in very tight. We have got further transaction activity with the low (inaudible) (0:55:22) rate and we expect them to stay in pretty close.

 

10        Q         What about in Australia?

 

            DXS     There is a sense that there will be a further softening or easing of cap rates rather, but again as aforementioned, in Australia, we are short on evidence at the moment as well. Our weighted average cap rate is 7.5%, and as I

15                    mentioned, we have got a mix of assets of high quality so we are pretty comfortable with where we are sitting at the moment.

 

            DXS     In the office, our average at the moment is 6.4. We have moved 33, that is understated. I mentioned earlier, as a rule, our premium is A grade so we

20                    would expect a lot more movement on that.

 

      Operator    Your next question comes from (Inaudible) (0:56:18) from GAC. Please ask your question.

 

25        Q         Hi, guys. Just a follow-up from Juan’s question on Bligh Street. I mean, if you can give us some, I guess the rental forecast, can you give us maybe some updates on the development yields that you are expecting on this project given, I guess, funding cost and construction cost have gone up?

 

30        DXS     In the Appendix, we have got an outline of cost and anticipated yield, and I am just looking for the slide number. It is slide 66. As you can see there, Bligh, our cost is 14. That is our fixed share which is 68%. (Inaudible) (0:57:03) of course owns the balance. We are looking at a yield there on cost of 7.3%.

35

            Q         Okay, great. I mean, given office cap rates are sort of sitting at 6.4% now in the weighted average, I guess, at what point this development pipeline look a little bit more unviable? I guess that is the question.

 

40        DXS     Perhaps if you look at slide 67, the slide below, we have indicated the types of yields that we will be looking at North Ryde and Parramatta. North Ryde is around 7.25% and Parramatta 8%. They are the types of hurdle rates we will be setting for ourselves in those markets.

 

45        Q         OK, thanks very much.

 

            DXS     At this time, there are no further questions on the phone line.

 

            Q         Hi, (indiscernible) from Macquarie. Just a follow-on question re development. Can you just talk about how you mitigate or lock in costs on the development to prevent being burned by the strong escalation that we have seen obviously in steel and concrete prices on industrial and/or office buildings?

5

            DXS     It is something that we are very conscious of not just in commercial but in industrial and we have a tradition of locking in fixed price contracts with guaranteed prices in a number of instances with cost savings to the extent they can be identified subsequent to locking in the price but we do not take

10                    the construction risk and for instance in both 1 Bligh and 123 Albert Street, each of the builders are assuming all those risks.

 

            Q         Can you give an idea at one point you can lock those costs in?

 

15        DXS     They are locked in as we speak.

 

            Q         For all of that development?

 

            DXS     For those two projects, yes.

20

            Q         What about the remaining development pipeline which you said you have estimated costs and yields.

 

            DXS     Obviously, nothing on an estimated basis or where we have not commenced

25                    a project is locked in if we do not have a building contract.

 

            Q         That’s really only on commencement?

 

            DXS     It’s only at commencement but it will be locked-in, yes.

30

            Q         Sean Murray again from Perpetual. Victor, on the wholesale property fund, do you see much growth in that fund over the next couple of years and how are your investors positioned to enable you to do developments? Do you see the gearing level starting to move out in the wholesale fund or are you just going

35                    to hold back a little bit on redevelopments over the next couple of years?

 

            DXS     With the wholesale fund, there are number of projects that are under development. One obviously is the co investment with the listed vehicle in 1 Bligh, and that project is fully funded, similarly with their project in Townsville,

40                    where they are undertaking the expansion of the shopping centre. That project there is also funded. They have debt facilities in place and funding has been secured for those projects to the extent they undertake other projects than we will review the funding requirements at that time but the fund has the capacity to increase above debt its current level.

45

                        I think that investor interest in property at the moment is limited and particularly in core assets. And I do not see the wholesale fund as being any different to that. I think that whether our value added opportunities that is helping the interest and certainly our wholesale fund have some of those and I think as I mentioned before, the thing that I found pleasing is that we have been able to raise $800 million for that fund post the credit crisis earlier this year.

 

5                      If there are no other questions, in concluding I would like to deal with a couple of logistical issues. Firstly, we will have as normal be providing our properties and offices to the day it will be available on our website and we will also be having the worksheets so that you can download it straight into your models. Secondly, we are today launching a webcam which will give you 24-hour

10                    access to being able to view down into our development site at 1 Bligh. Not only can you view, you will also be given the opportunity to take advantage of locating the camera where you will get for two minutes at a time the ability to control the camera, not just look at our side but other properties in the city. Thirdly, we have a small fly-through video of 1 Bligh which we will be putting

15                    onto the website for your review commencing next week and finally as always, we are more than happy to deal with follow-up questions in the first instance. Obviously Craig and Karol but obviously the whole team will be available in support of any of those considerations. So once again, thank you very, very much for your support and for those in the room, we will actually be

20                    showing the fly-through right now if you care to stay but we will not be upset if you… Sorry, sorry, you will have to look at the website. Okay so thanks very much for your time.

 

INTERVIEW CONCLUDED

 

 

 

 

Contact brr@brr.com.au for more information

 

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