Purchase of Dexus Property Group (ASX: DXS)

29th May 2024

Across the Australian equity component of investor accounts (Income Tilt), we have bought Dexus Property Group (ASX: DXS), a fully integrated Australian real asset business.

Dexus invests directly in a high-grade portfolio of office, industrial, and healthcare properties that total ~$15.5bn, and it manages ~$41bn of property and infrastructure assets on behalf of third-party investors including funds into which it co-invests. The group’s active development pipeline of ~$16bn provides the opportunity to grow both portfolios and enhance future returns.

We are attracted to Dexus for the following reasons:

the quality of their office portfolio
their robust income generation
the increasing diversification of their overall portfolio

Dexus has two key levers for value creation that we would like to highlight:

stablisation of the office leasing market post covid
an ability to keep growing its funds under management

Firstly, the office leasing market is stabilizing and Dexus benefits from demand for quality properties that are well-located. Both employers and employees have adjusted to increased working from home and space that was not needed has been given up. Occupancy rates have proven resilient in higher quality buildings. Across its portfolio of prime buildings, occupancy remains high, well above market averages in the cities where it operates. While there are still risks around incentives and vacancies given upcoming lease expiries, this is already reflected in the discount to net tangible assets of office building valuations.

Secondly, Dexus is actively growing its funds management business. While a longer dated lever given recent redemptions, management have a proven track record of attracting third-party capital partners across the office, industrial and healthcare sectors by leveraging their development pipeline to organically grow funds under management. With interest rates stabilizing there are indications of growing interest from their investor base and offshore capital allocators to invest in Australian property and infrastructure assets. Their scale supports their ability to invest in talent to deliver leading returns.

We have funded the purchase of Dexus via the de-weighting of ANZ Banking Group (ASX: ANZ), Macquarie Group (ASX: MQG), Telstra Corporation (ASX: TLS) and Westpac Banking Corporation (ASX: WBC).

As always, thank you for your ongoing support, it is very much appreciated. If you have any questions or would like more information, please contact your adviser.

Warnings and disclosures

This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.