Dexus (ASX: DXS) ASX release 15 October 2019 Board investor - - PDF document

Dexus (ASX: DXS)

ASX release

15 October 2019 Board investor presentation Dexus provides the attached presentation which will be used as a basis of discussion in investor lunch sessions with members of the Dexus Board in Sydney and Melbourne. For further information please contact: Investor Relations Rowena Causley +61 2 9017 1390 +61 416 122 383 rowena.causley@dexus.com Media Relations David Yates +61 2 9017 1424 +61 418 861 047 david.yates@dexus.com

About Dexus Dexus is one of Australia’s leading real estate groups, proudly managing a high quality Australian property portfolio valued at $31.8 billion. We believe that the strength and quality of our relationships is central to our success, and are deeply committed to working with our customers to provide spaces that engage and inspire. We invest only in Australia, and directly own $15.6 billion of office and industrial properties. We manage a further $16.2 billion of office, retail, industrial and healthcare properties for third party clients. The group’s circa $9.3 billion development and concept pipeline provides the opportunity to grow both portfolios and enhance future returns. With 1.7 million square metres of

• ffice workspace across 53 properties, we are Australia’s preferred office partner. Dexus is a Top 50 entity by market

capitalisation listed on the Australian Securities Exchange (trading code: DXS) and is supported by 26,000 investors from 19 countries. With 35 years of expertise in property investment, development and asset management, we have a proven track record in capital and risk management, providing service excellence to tenants and delivering superior risk- adjusted returns for investors. www.dexus.com Download the Dexus IR app Download the Dexus IR app to your preferred mobile device to gain instant access to the latest stock price, ASX Announcements, presentations, reports, webcasts and more. Dexus Funds Management Ltd ABN 24 060 920 783, AFSL 238163, as Responsible Entity for Dexus (ASX: DXS)

Dex exus us Fund unds M Mana nagem ement ent L Limited ed AB ABN 24 24 06 060 9 0 920 20 783 AF AFSL 238163 as r res espons nsible ent e entity for D Dex exus us

Board investor presentation

Melbourne and Sydney October 2019

2

Dexus Research

7 key themes to take us forward…

Board investor presentation – Melbourne and Sydney

3

Theme 1

Uncertainty is the one thing we can be certain about

3

Softer occupier demand

• utlook

Lower for longer interest rates

The good… The bad… Outcomes for FY20…

Volatility in share markets

3 Board investor presentation – Melbourne and Sydney

Downward pressure on cap rates on quality assets

4

Theme 2

Occupier demand likely to be influenced by confidence

Office net absorption (qtly)

2009 – 2019, ‘000sqm

Source: JLL Research, Dexus Research

4 Board investor presentation – Melbourne and Sydney

• 150
• 100
• 50

50 100 150 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Syd CBD Melb CBD Bris CBD Perth CBD 4CBDs

Sydney CBD office net absorption

Employment growth still solid, Government decentralising

Source: JLL Research (includes deals >1,000sqm), Dexus Research, ABS, Colliers International

• 40
• 20

20 40 60 80 100 120 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 000sqm

Large occupiers net take-up by industry

Finance & Insurance Property & Business Services Information Technology Government Education & Health Other

• 5.0%

0.0% 5.0% 10.0% Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Per annum

Employment growth NSW

Total employment White collar industries 3.5% pa 5 Board investor presentation – Melbourne and Sydney Reflects a reorganisation by a major bank. Finance sector has been the largest source of enquiry and fourth largest for transactions in 2019

Melbourne CBD office net absorption

Demand being boosted by super-strong population and jobs growth

Source: JLL Research (includes deals >1,000sqm), DEXUS Research

• 80
• 40

40 80 120 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 000sqm

Large occupiers net take-up by industry

Finance & Insurance Property & Business Services Information Technology Government Education & Health Other

• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Per annum

Population growth

AUS VIC

• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Sep-09 Sep-12 Sep-15 Sep-18 Per annum

Employment growth

AUS VIC Board investor presentation – Melbourne and Sydney 6

• 5%

0% 5% 10% 15%

• 5%

0% 5% 10% 15% FY19 FY20 FY21 FY22 FY23 FY24 FY19 FY20 FY21 FY22 FY23 FY24 Sydney CBD Melbourne CBD Net supply (RHS, % of stock) Vacancy 20yr average

Vacancy and net supply forecasts – selected markets

FY19 – FY23, % of stock

Theme 3

Low vacancy rates give office markets a high degree of resilience

7.4%

Source: JLL Research (FY19 Actual), Dexus Research Forecasts

7.8% 4.1% 3.8% Board investor presentation – Melbourne and Sydney 7

Theme 4

Office markets are at different points in their cycles

Source: JLL Research, Dexus Research

Prime net effective rental growth FY19

% pa, FY19 vs previous three years average growth 20.6% 11.2% 11.6% 9.9%

• 1.9%
• 8.3%

3.4% 2.7% 8.6% 10.0% 4.6% 1.3% Syd CBD Bris CBD Parramatta Melb CBD Perth CBD North Syd FY15-18 CAGR FY19 Growth tapering Growth firming Board investor presentation – Melbourne and Sydney 8

Theme 5

People will keep flocking to CBDs and inner city areas

Source: ABS

90 100 110 120 130 140 150 160 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 Index State Greater City Inner City

NSW employment growth by region

78% of office work areas are now

• pen plan rather

than walled/partitioned

Focus o s on at attrac acting g tal alent

• Millennials & Gen Z
• Live/work/play
• Vibrant precincts
• Public transport
• Best technology

Pro rovision o

• f infra

rastru tructu ture re

• Connecting hubs
• Metro rail
• Light rail
• Motorways

Nat ational al empl mployme ment gr growth – past past 1 10 year ars: s:

• White collar industries

2.6%pa

• All other industries

1.9%pa

3.3%pa 2.1%pa

Board investor presentation – Melbourne and Sydney 9

0% 5% 10% 15% Sep-89 Sep-92 Sep-95 Sep-98 Sep-01 Sep-04 Sep-07 Sep-10 Sep-13 Sep-16 Sep-19

Cash rate, ten year bond yield and discount rate

Cash rate 10 yr bond Office discount rate %

Theme 6

Lower-for-longer interest rates will underpin investment demand

Source: Bloomberg, MSCI, Assumes a 3.6% risk premium for A-Grade Sydney office

Current valuers’ IRR = 6.6% Impl mplied I d IRR expe pectat ations f s for differ eren ent lev evel els o

• f ‘

‘normal malise sed’ ’ bo bond y d yields: ds: Bond y yie ield ld Impl mplied I d IRR 3.0% 6.6% 2.0% 5.6% 1.0% 4.6% Board investor presentation – Melbourne and Sydney 10

Property yield spread to Government bonds

Sept 1999 – Sept 2019, 10 Yr Australian Government Bonds

Property yields by sector (average prime)

Sept 1999 – Sept 2019, %

4.69% 69% 5.00% 00% 4. 4.75% 4.88% 88%

4% 5% 6% 7% 8% 9% 10% 11% Sep-99 Sep-03 Sep-07 Sep-11 Sep-15 Sep-19 Syd CBD Office OWSyd Industrial Regional Retail Mel CBD Office

• 2%
• 1%

0% 1% 2% 3% 4% 5% 6% Sep-99 Sep-03 Sep-07 Sep-11 Sep-15 Sep-19 Syd CBD Office Regional retail OWSyd Industrial

Yield spreads

Real estate just became more affordable

Source: JLL Research, Bloomberg and Dexus Research.

Board investor presentation – Melbourne and Sydney 11

Relative value

Australian office property doesn’t appear expensive on a global scale

Source: Savills, JLL, Trading Economics, Knight Frank, Dexus Research. *Effective yields are based on A-grade office space – Australian, EU & Asia Pacific yields and bond rates as at June-19

0.0% 1.0% 2.0% 3.0% %

Office effective yield* spread to government bonds

Board investor presentation – Melbourne and Sydney 12

• 0.9%
• 0.9%
• 0.6%
• 0.6%
• 0.4%
• 0.2%
• 0.1%

0.1% 0.2% 0.3% 0.3% 0.3% 0.7% 0.8% 0.8% 0.9% 1.0%

• 0.3%

1.4%

• 2.0%
• 1.0%

0.0% 1.0% 2.0% Japan Republic of Korea Germany China Netherlands Singapore France United Kingdom Canada Brazil United States of America New Zealand Australia Indonesia Argentina Mexico India More developed regions Less developed regions, excl… %pa

Theme 7

Australia has the best demographics in the developed world

Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision, custom data acquired via website.

Growth in working age population to 2040

54% 56% 57% 57% 57% 59% 60% 60% 60% 61% 62% 62% 66% 67% 68% 68% 69% 59% 65% 40% 50% 60% 70% 80% Japan Republic of Korea Germany France Netherlands Singapore United Kingdom New Zealand Canada United States Australia China Brazil Mexico Indonesia India Argentina More developed regions Less developed regions, excl China %pa

Proportion of working age population in 2040

13 Board investor presentation – Melbourne and Sydney

Environmental, Social and Governance (ESG) factors

14 Board investor presentation – Melbourne and Sydney

Global Industry Leader for the Real Estate Sector

ESG benchmarks

Leading performance

Global Sector Leader for listed office entities (Dexus Office Trust)

– Achieved strong results across leading global ESG benchmarks in 2019 – Strong sustainability credentials have also recently earned Dexus a place on ESG-focused investable indices, including MSCI ACWI Climate Change Index and S&P/ASX 200 ESG Index

A+ rating for Strategy and Governance A+ rating for Direct Property Board investor presentation – Melbourne and Sydney 15

How Dexus creates value

16 Board investor presentation – Melbourne and Sydney

Source: Dexus 2019 Annual Report.

Environment – our focus areas

Transition to a low carbon economy

• Targeting net zero emissions by 2030 – minimising transition risk, creating

benefits for the bottom line, and aligning with the ambitions of our third party capital partners

• Achieved a 45.6% reduction in group office emissions intensity since FY08
• Saved over $136 million through enhanced portfolio energy efficiency since

FY08

• Updated our understanding of the physical impacts of climate change

across our portfolio, integrating the results into our Environmental Management System

17 Board investor presentation – Melbourne and Sydney

Focus on water and waste

• Continuing to deploy upgrades to fixtures and fittings, improving fault detection,

and optimising cooling tower water efficiency

• Achieved a 22% reduction in group office water intensity since FY08
• Early adopter of the NABERS Waste rating tool, to be rolled out across office

properties to benchmark performance and inform improvements

Increasing renewable energy

FY19 value of community contribution

$1.2 million Responding to customer needs

– Offering products and services curated to enhance the performance and wellbeing of our diverse customer base including:

• project delivery services
• flexible suite leasing
• ‘simple and easy’ lease
• Workplace consulting services
• Wellplace

– 50% of customer survey respondents are ‘highly likely’ to renew their lease (up from 43% in 2018 and 28% in 2013)

Modern Slavery Act (suppliers)

– Dexus has undertaken work to understand modern slavery risks in its operations and supply chain as well as enhance how it mitigates these risks – Established an internal Modern Slavery Working Group which has:

• Updated Human Rights policy
• Updated precedent contracts and amended

existing cleaning and security contracts

• Held internal briefings with key business units and

progressed training for all staff

• Implemented a whistleblowing hotline for suppliers

and contractors

• Progressed awareness campaign incorporating
• nsite posters

– The Property Council of Australia launched a modern slavery supplier assessment tool earlier this month, with Dexus a founding member of the consortium

• Dexus has invited 125 of its key suppliers to

disclose information on their labour management practices using the tool

• Information will assist Dexus to extend its

understanding of modern slavery risk across its supply chain, and prioritise supplier engagement

Social – our focus areas

Supporting thriving people (employees)

– >80% of our employees participate in flexible working – Recognised as an Employer of Choice for Gender Equality by the Workforce Gender Equality Agency – Placed internal candidates in 27% of available roles

Contributing to strong communities

FY19 employee Net Promoter Score

+40

Board Investor lunch presentation – Melbourne and Sydney 18 Board investor presentation – Melbourne and Sydney

Achieved strong FY19 customer Net Promoter Score

+46

Governance – our focus areas

Board investor presentation – Melbourne and Sydney 19

• Conducted a detailed review of our

corporate governance framework and have es establ ablished a ed a dedi dedicat ated D ed Dex exus Governance t team

• Establ

ablished ed a n a new ew Boar ard E d ESG Committee ee

• Bes

est pr prac actice c e corpo porat ate go e gover ernan ance e pr prac actices es continue to attract third party capital partners

• Saf

afet ety of our employees, contractors and people visiting our properties is of f par param amount i impo portan ance

Who we we a are re

• We are a passionate and agile

team who want to make a difference Why we c e come e to w work

• We create spaces where people

thrive What w we b e bel eliev eve e in We are here to create value for:

• Our customers
• Our investors
• Our communities
• Our people

How we be behav ave an and w d what w at we v val alue

• Openness and Trust
• Empowerment
• Integrity

Important information

• This presentation is issued by Dexus Funds Management Limited (DXFM) in its capacity as responsible entity of Dexus

(ASX:DXS). It is not an offer of securities for subscription or sale and is not financial product advice.

• Information in this presentation including, without limitation, any forward looking statements or opinions (the Information) may

be subject to change without notice. To the extent permitted by law, DXFM, Dexus and their officers, employees and advisers do not make any representation or warranty, express or implied, as to the currency, accuracy, reliability or completeness of the Information and disclaim all responsibility and liability for it (including, without limitation, liability for negligence). Actual results may differ materially from those predicted or implied by any forward looking statements for a range of reasons outside the control of the relevant parties.

• The information contained in this presentation should not be considered to be comprehensive or to comprise all the

information which a Dexus security holder or potential investor may require in order to determine whether to deal in Dexus stapled securities. This presentation does not take into account the financial situation, investment objectives and particular needs of any particular person.

• The repayment and performance of an investment in Dexus is not guaranteed by DXFM, any of its related bodies corporate or

any other person or organisation.

• This investment is subject to investment risk, including possible delays in repayment and loss of income and principal invested.

20 Board investor presentation – Melbourne and Sydney