Key Highlights

• Office occupancy was 95.7%, against a market average of 85.1%, according to the company's figures as reported.

• Look-through gearing of 33.4% includes Dexus's share of Debt in its managed funds and joint ventures, which gives a fuller picture than headline gearing.

• FY27 AFFO guidance is 37.5 to 39.5 cents per security, and the distribution is targeted at 37.0 cents, assuming no major changes in market conditions.

• Dexus said Earnings would be lower than in FY26 on certain drivers: reduced performance fees, an immaterial contribution from trading profits and a smaller contribution from funds under review.

What does it take for an office-focused property group to keep distributions steady while reshaping its balance sheet? Dexus (ASX:DXS) set out its answer on 20 August 2026 with FY26 adjusted funds from operations (AFFO) of A$483.9 million, in line with guidance, an unchanged distribution of 37.0 cents per security, and look-through gearing of 33.4%, at the lower end of its target range. It also guided to lower earnings drivers in FY27 and announced a strategic review of its infrastructure funds business.

The FY26 numbers

AFFO is a better guide to cash earnings for a property group because it adjusts for maintenance Capital Expenditure and incentives.

Office occupancy was 95.7%, against a market average of 85.1%, according to the company's figures as reported. Industrial effective like-for-like income growth was 8.3%. A high Occupancy Rate relative to the market suggests that Dexus's buildings are in demand, though occupancy does not show the level of incentives needed to attract tenants.

Capital recycling and partnerships

Selling Assets reduces debt and releases capital, and bringing in partners allows the group to retain management fees while sharing capital requirements. Dexus is partly an investor and partly a fund manager, so its earnings include fees, which are less sensitive to valuations than ownership income but are sensitive to fund performance and flows.

FY27 outlook

FY27 AFFO guidance is 37.5 to 39.5 cents per security, and the distribution is targeted at 37.0 cents, assuming no major changes in market conditions. Dexus said earnings would be lower than in FY26 on certain drivers: reduced performance fees, an immaterial contribution from trading profits and a smaller contribution from funds under review.

Projects and the infrastructure funds review

Atlassian Central, the Sydney project, remains on schedule. Waterfront Brisbane has been delayed to late 2029, which pushes back the timing of earnings from that development. The company also announced a strategic review of its infrastructure funds Business following legal proceedings related to the APAC airports matter. A strategic review can result in a sale, restructure or retention, and each path would affect fee income differently.

Other priorities include further capital recycling, broader capital partnerships, improving platform efficiency, simplifying the fund offering and adopting new technologies.

Sector and competitive position

Dexus competes with other office owners and fund managers such as Mirvac, GPT and Charter Hall. Office Demand has been affected by hybrid working, but the market has shown a flight to quality, in which premium buildings in central locations do better than older stock. Dexus's focus on high-quality assets is consistent with that trend, and its occupancy advantage suggests it is succeeding. Interest rates remain the key external factor: higher rates lift Capitalisation rates and reduce valuations.

Gearing and Balance Sheet flexibility

Look-through gearing of 33.4% includes Dexus's share of debt in its managed funds and joint ventures, which gives a fuller picture than headline gearing. At the lower end of the target range, the balance sheet has room to fund the Atlassian Central project and other developments without large Equity raisings, although the company has been selling assets to hold that position. Divestments above A$1.9 billion are a positive for liquidity, but they depend on buyers and pricing, and sales at discounts to Book Value would affect net tangible assets. The Brisbane delay also means capital stays committed for longer before it earns income.

Risks and what to monitor

Thin distribution cover at the lower end of guidance is also relevant.

Items to watch include AFFO against the 37.5 to 39.5 cent range, the distribution against 37.0 cents, gearing relative to target, progress on divestments and Partnership commitments, construction at Atlassian Central, and the outcome of the funds review. The half-year result, expected around February 2027 on the usual timetable though unconfirmed, will give an early read on FY27.