Ad hoc: Dexus Finance Pty Limited: 2021 AGM Chair and CEO address

Dexus (ASX: DXS)

ASX release

19 October 2021

2021 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 meeting will be webcast and can be viewed by using the following link: https://agmlive.link/DXS21

To view the full ASX release and presentation, download the PDF available at https://www.dexus.com/investor-centre/results-and-reporting/asx-announcements

Authorised by the Board of Dexus Funds Management Limited

For further information please contact:

Dexus 2021 Annual General Meeting

Chair's address

Good afternoon everyone and welcome to our 2021 Annual General Meeting. I'm Richard Sheppard, Chair of the Board of Directors of Dexus Funds Management Limited.

On behalf of the Dexus Board, I appreciate your understanding of the changes we have made to the meeting format. It is encouraging to see the increased vaccination rates across the country and that restrictions have recently started to ease for vaccinated people in New South Wales, with a further easing in the coming months. We hope that next year we will be able to hold this meeting in person at one of our Dexus Place facilities, which is our preferred format.

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

I would like to acknowledge the Traditional Custodians of the land on which we are presenting from today, and pay our respects to their Elders past, present and emerging. I would also like to extend that respect to, and welcome, any First Nations people who are joining our meeting today. This acknowledgement is important to us as we are starting our journey to implement the first stage of our Reconciliation Action Plan which is focused on initiatives that enhance our connection with First Nations peoples and promote reconciliation across our operations and communities.

I will start today's presentation by looking at our business. Dexus is one of Australia's leading real estate groups, managing a high-quality Australian property portfolio valued at $42.5 billion - up from $32 billion last year.

This includes our $17.5 billion investment property portfolio and our $25.0 billion funds management business. In addition, we have a $15.4 billion group development pipeline that will create future value. We have built significant scale across the office, industrial, healthcare and retail property sectors and believe our capabilities across these asset classes, along with our engaged workforce, enables us to stay connected to our purpose which is to create spaces where people thrive.

We released our 2021 Annual Report and Sustainability Report in August which reinforce our focus on creating long-term value from a financial and non-financial perspective and covers our key ESG achievements. Both reports are available on our website.

Each year, our strategy review process looks at our existing strategy and how we can better position Dexus to capitalise on new opportunities and be prepared for challenges. The pandemic has reinforced the importance of having a diversified business model, a high-quality property portfolio and a strategy that can deliver through the cycle.

Throughout the year, we maintained our focus on the strategic initiatives of increasing the resilience of portfolio income streams, expanding and diversifying the funds management business, and progressing the group development pipeline.

These initiatives have now been incorporated into revised strategic objectives that will guide the next stage of our business evolution. They include investing in sustainable income streams that provide resilience through the cycle, and being identified as the real estate investment partner of choice by expanding and diversifying our funds management business.

The strength of Dexus's balance sheet, our access to pools of capital and an agile, solution-based culture all enable us to deliver our strategy, along with our prudent approach to capital management and commitment to sustainability. The delivery of our strategy also requires us to maintain and develop a strong and experienced Executive team, which I will have more to talk about shortly.

As I just mentioned, one of our key areas of focus has been to grow and diversify the funds management business.

During the year we implemented some major strategic initiatives which grew the funds management business and positioned it for future growth including securing the merger of AMP Capital Diversified Property Fund with Dexus Wholesale Property Fund, simplifying the Dexus corporate structure (which you as Security holders approved earlier in the year), and acquiring APN Property Group.

Our funds management business provides a capital efficient way to increase our exposure to growth sectors. Our focus on growing and diversifying this business has resulted in funds under management increasing to $25 billion dollars across diversified capital sources incorporating wholesale pooled funds, listed REITs, joint ventures and real estate securities. Over the past nine years our funds business has achieved an 18% compound annual growth rate.

Notably, our healthcare fund now stands at more than $1.3 billion, and during the year we attracted a new capital partner to form a partnership to invest in an interest of 1 Bligh Street in Sydney. We are now integrating the APN Property Group business onto our platform and leveraging our expertise to support the strategies of those funds.

Dexus's activity during the year drove a solid financial result. From a challenging starting position during the pandemic, we provided guidance in October 2020 for a distribution per security amount that was consistent with last year. The expectation was that the operating environment would remain subdued, that our financial performance would be impacted by asset sales to maintain our balance sheet strength, and we were in the middle of the pandemic and its associated challenges and uncertainties.

A combination of better-than-expected outcomes across the property portfolio, as well as delayed settlements of asset sales and other initiatives, enabled us to announce in May this year an upgrade in our guidance to 3% growth in distribution per security. We delivered this guidance, with a full year distribution of 51.8 cents per security - resulting in a 5.5% compound annual growth rate since FY12 - or to put a bit differently, distributions have grown from 32.1 cents per security in FY12.

This result was achieved despite the ongoing impacts of the pandemic on our customer base and the extension of the government mandated National Commercial Code of Conduct, which saw rent relief provided to small and medium sized customers impacted by COVID-19.

We delivered a Return on Contributed Equity of 8.3% driven largely by Adjusted Funds From Operations and revaluation gains from completed developments at 180 Flinders Street, Melbourne and our industrial estate at Ravenhall, Victoria.

Our strong balance sheet was maintained with gearing well below our target range of 30-40%.

On behalf of the Board, I would like to acknowledge the efforts of Management and our employees in achieving these financial outcomes in what has been a very difficult operating environment.

Our properties demonstrated their resilience against the background of the pandemic and the associated lockdowns. Significant leasing was achieved over the year which resulted in office and industrial portfolio occupancy levels remaining high - and Mr Steinberg will discuss our current position on this shortly.

Obviously, the question that people are asking about office is: "what does the future hold?". Our experience based on leasing activity over the past year has shown that offices are still in demand, with a number of companies centralising into quality assets in the CBD from suburban markets.

The feedback we are getting from our customers is that workplace flexibility is here to stay, but to different degrees depending on the company. Many are adopting a blended or hybrid model that allows greater flexibility for employees to work from home but where offices continue to play an important role. The office will retain its role as a hub for collaboration, social interaction, career development and culture. This trend has some time to play out as our customers explore how to create the optimal blend of the physical and virtual workplace.

And with Prime grade assets making up 94% of our office portfolio, we have seen asset values supported through transactions, and in challenging markets tenants choosing to upgrade to better quality buildings.

We moved early in the pandemic, bringing forward some planned asset sales to enhance our financial strength at a time of heightened risk. This also ensured that we could fund the significant pipeline of growth opportunities in the development and funds business.

As you can see from this slide, we have been active in redeploying capital into opportunities across a range of sectors and into strategic transactions, all of which we believe offer attractive risk adjusted returns.

We will continue to selectively recycle assets to ensure that we maintain our balance sheet strength and reinvest into higher returning opportunities.

Our portfolio of city-shaping projects are the cornerstone of the development pipeline which has grown to over $15 billion, with the planning progressed at a number of these projects. The key projects in our development pipeline include:

• Waterfront Brisbane, which is a major redevelopment of the Eagle Street Pier site and will make way for two office towers creating a vibrant retail and public space;
• Central Place Sydney which is a large scale mixed-use development integrating a pedestrian and transport solution above Central station;
• Right next door is the Atlassian development which will push the boundaries of what the future of workplace looks like and how it works, adopting leading sustainability credentials;
• The Pitt and Bridge precinct which is a significant future office tower development in the financial core of the Sydney CBD; and
• 60 Collins Street, Melbourne which will create a Premium grade office tower across the road from our recently completed development at 80 Collins Street

As we emerge from the pandemic, our customers are looking to invest in their workplaces to ensure they support their business success- and so having iconic projects in prime locations is going to be an important part of meeting their future demands.

Environmental, Social and Governance, or ESG principles, are integrated across our business operations and continue to grow in importance for our customers and investors.

We are focused on managing ESG risks and opportunities while progressing our Sustainability Approach. This slide shows our achievements across key areas of our business for the year and shortly we will show you a video covering this in more detail.

Recognising the urgency to act on climate change, we have brought forward our net zero emissions target from 2030 to 30 June 2022. Through this action, which is a key focus for a number of our investors and customers, Dexus estimates it will avoid a further one million tonnes of carbon emissions from our original target. This will be achieved through continued investment in energy efficiency initiatives, transitioning to renewables, and supported by nature-based carbon offsets.

We have an experienced management team that continues to deliver on strategy. They have demonstrated their ability to capitalise on opportunities while also being able to address challenges.

Before I move on, I would like to address the topic of remuneration. While the poll on the Remuneration Report has not yet been taken, based on the proxy votes already received for Resolution 1, we expect a substantial vote against it.

The remuneration decisions made by the Board in FY21 were focused on ensuring key Executives are retained and motivated, while recognising the importance of strengthening our senior leadership succession planning and maintaining stability within a highly competitive market for talented executives.

We are dealing with an uncertain and complex operating environment and refocusing our strategy to funds management to drive long-term security holder returns, reinforcing the rationale for our decisions to retain key members of our executive team.

Our decisions were not made in isolation. We sought views from our major Security holders as well as proxy advisers to ensure their feedback was incorporated into the final decisions and structure of the retention awards granted during the year. During this engagement process, many of those consulted were supportive of measures to retain key Executives.

We value the views of our Security holders and are committed to consult, listen and consider all feedback when making remuneration decisions in the year ahead.

From what you have heard in my address today, Dexus has performed well across all financial and non-financial areas throughout FY21, including its financial performance during the COVID-19 crisis and across key non-financial measures of culture, engagement, safety and diversity.

Looking forward, we are confident of being able to deliver long-term performance beyond the recovery, through our scale and capability across traditional and emerging real estate sectors, our funds management business which provides a capital efficient way to increase our exposure to growth sectors, and our substantial city-shaping development pipeline.

Based on current expectations relating to impacts from COVID-19 and barring unforeseen circumstances, we expect to deliver distribution per security growth of not less than 2% for the 12 months ended 30 June 2022.

CEO's address

Thanks Richard and good afternoon everyone.

Despite the current complex operating environment, we had an active quarter across our business, and it is encouraging that with increased vaccination rates there is a roadmap out of the continual lockdowns that Australia has experienced over the past 18 months.

Leasing continued over the first quarter of the year, with over 129,000 square metres of space leased across our office and industrial properties, which is a strong result in a lockdown environment.

We've maintained our focus on rent collections which resulted in 97.9% of rent being collected and were involved in $1.6 billion of acquisitions which have supported the growth of our Funds Management business.

Looking at the performance of our $17.5 billion property portfolio, and over the past few months we've seen leasing activity continue and enquiry volumes remain buoyant across our office portfolio.

Our portfolio occupancy remained high versus the market at 95.1% for office and 97.2% for industrial. Across both our office and industrial portfolios, the Weighted Average Lease Expiry has increased slightly.

As Richard mentioned, our customers use of office space will continue to evolve, as it has done over time. The office is a key driver for culture, collaboration and innovation and quality workspaces will remain in demand by companies seeking to differentiate themselves in order to attract talent.

Over the past quarter we have maintained momentum from a transactional perspective through the acquisition of a portfolio of quality industrial properties alongside Dexus Industria REIT for a combined acquisition price of $1.5 billion, including Jandakot Airport and its associated industrial precinct in Perth.

These high-quality investments will further enhance the resilience of our property portfolio. The near-term development potential and scope to enhance returns by introducing third party capital is aligned with our priorities to grow our funds management business and recycle capital into high returning opportunities.

This transaction also provides the opportunity to achieve a step change in growth for the Dexus Industria REIT as it secures an interest in quality logistics-oriented real estate with embedded development potential.

We acquired a further healthcare property for Dexus Healthcare Property Fund and now have $1.8 billion of healthcare real estate on the platform.

So, to conclude, we are well prepared to continue to deliver for our investors.

We have a high-quality real estate portfolio that continues to remain relevant to our customer base.

Our diversified funds business with long-term partnerships continues to attract capital, providing secure annuity-style income and co-investment opportunities.

And our significant development pipeline provides embedded growth for Dexus and our third party capital partners.

All of this is enabled by our quality people, scalable and efficient operating platform, and 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