DEXUS (DXS) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for your attendance today. My name is David Yates, and I'm the Executive General Manager of Investor Relations, Communications and Sustainability at Dexus. The highlights video you've just seen has provided you with a great insight into the many achievements across our business over the past financial year. In light of the current physical distancing guidelines, this year, our AGM is again being run as a virtual event. We are using the Link Market Services online platform, which enables security holders to view the meeting, vote while the meeting is underway and submit questions. This year, we also have a conference call facility available where security holders can ask questions directly to the meeting. If you are yet to get your voting card to vote on the resolutions for the meeting, you should click the Get a Voting Card button at the top of your screen to register first, which will then enable you to submit your vote at any time during the meeting. If you are a security holder, you will need your security holder number and post code to register your vote. If you are a proxy holder, please enter the proxy number issued to you by Link Market Services in the PROXY DETAILS section and click the SUBMIT DETAILS AND VOTE button. Voting will close 5 minutes after the close of the meeting and will be released to the ASX later today. If you have any questions to put to the meeting today and you are not on the conference call telephone line, we suggest that you submit your questions as early as you can, specifying whether the question relates to general business or a specific resolution, and these will be addressed at the appropriate time during the meeting. We will endeavor to answer all of your questions during today's AGM. And for any questions that we do not have time to address, we will ensure we get back to those investors separately. I would now like to hand you over to Richard Sheppard.

Thank you, David, and good afternoon, everyone, and welcome to our 2021 Annual General Meeting. As Dave mentioned, I'm Richard Sheppard, Chair of the Board of Directors of Dexus Funds Management Limited. And on behalf of the Board, I appreciate your understanding of the changes we've made to the meeting format. It's encouraging, obviously, 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'll be able to hold this meeting in person at one of our Dexus Place facilities, which is very much our preferred format. I now formally table my appointment as Chair of today's meeting and open the meeting. First of all, I'd 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'd also like to extend that respect to and welcome any First Nations people who are joining our meeting today. This acknowledgment 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. Today, I'm joined by Dexus Chief Executive Officer and Executive Director, Darren Steinberg, who you'll hear from a little later; and our Independent Director, Warwick Negus. Not with us today, but joining us remotely in Sydney, Brisbane and Melbourne are our other independent directors, Penny Bingham-Hall, Mark Ford, Patrick Allaway, Tonianne Dwyer and Nicola Roxon. I'd also like to welcome our company secretaries and representatives from the Group Management Committee, along with the representative from our auditors at PwC and lawyers at King & Wood Mallesons. Before I move on to the main agenda, I'd like to acknowledge Peter St. George, who retired from the Board on 30th of June this year. Peter served as a Non-Executive Director of Dexus for more than 11 years, joining the Board in April 2009. He brought a wealth of knowledge to the boardroom with his extensive corporate advisory and finance experience. On behalf of the Board and Group Management Committee, I'd like to thank Peter for his significant contribution to Dexus over the past decade and wish him all the best on his future endeavors. Let me now commence the meeting with my address, which will provide you with an overview of key aspects of our 2021 result as well as our position in the current operating environment. I'll then hand over to Darren, who will look at our most recent achievements. We'll then turn to the formal aspects relating to the resolutions, which were outlined in the Notice of Meeting, and the explanatory memorandum sent out to you in mid-September. Yesterday, we announced to the ASX that we had withdrawn resolution #4. This is the resolution that proposed a number of amendments to the constitutions of each of the 2 trusts that comprise Dexus. One of the amendments related to providing the responsible entity and security holders with more flexibility in attending meetings by improving the responsible entities powers to hold hybrid or fully virtual meetings for the trusts going forward, in light of the uncertainty caused by disruptions to the market, such as the ongoing government restrictions. While it was proposed to hold virtual meetings only in exceptional circumstances, the Board became aware of reservations expressed about the use of virtual meetings by listed companies and made the decision to withdraw resolution 4. The withdrawal of resolution 4 does not affect the validity of proxy or direct votes already submitted in respect of the remaining items of business, which will be put to security holders today. Accordingly, I now formally call for a poll on all resolutions to be put to the meeting and declare that the polls are open, so that you can all now start to lodge your votes. Let me now turn to today's presentation looking at our business. Dexus today 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. So a big growth over the -- since we last met. This includes our $17.5 billion investment property portfolio, that is, the properties that we hold on our balance sheet and our $25 billion funds management business. In addition, we have a $15 billion group development pipeline that will create future value. We have built -- which I'll talk about in a little more detail later. We've built significant scale across the office, industrial, health care 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 nonfinancial perspective and covers our key ESG achievements. Both reports are available on our website. The next slide, Slide 11, talks about our strategy. Each year, our strategy review process looks at our existing strategy and how we can better position Dexus to capitalize 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' 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'll have more to talk about shortly. Now 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 the AMP Capital Diversified Property Fund with the Dexus Wholesale Property Fund; simplifying the Dexus corporate structure, which you, as unitholders, security holders, approved earlier in the year; and acquiring the APN Property Group, which is a property funds management 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 across diversified capital sources, incorporating wholesale pooled funds, listed real estate investment trusts, joint ventures and real estate securities. Over the past 9 years, our funds business has achieved an 18% compound annual growth rate. In terms of some highlights, our health care 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 in 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. In terms of financial outcomes, our activity during the year drove a solid financial result. From a challenging starting position during the pandemic, when pretty much half the country was closed down, we provided guidance in October 2020 for a distribution per security amount that was consistent with last year, that is a flat growth in distributions. Our expectation then 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 very much 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 to our guidance to 3% growth in distribution security, which we've now delivered upon, with a full year distribution of $0.518 per security, which results in a 5.5% per annum compound growth rate since fiscal 2012. So to put that differently, in 2012, our distributions were running at $0.32 per security that have now grown to $0.52 security, so a very solid growth. 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. And I must say that our management team spent an enormous amount of time trying to provide as much help as we can for particularly the small tenants, the cafe bars and so on that service people from the lower levels of our buildings. We contributed 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% to 40%. So on behalf of the Board, I'd like to acknowledge as well as on behalf of security holders the efforts of management and our employees in achieving these financial outcomes in what has been a very, very difficult operating environment and very difficult, as I mentioned, for many of our tenants. In terms of our portfolio, 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. Now 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 centralizing into quality assets in the CBD from suburban markets. The feedback we're 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. Obviously, 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 as health restrictions are freed up. And with prime grade assets making up 94% of our office portfolio, we've seen asset values supported through transactions and in challenging markets, tenants choosing to upgrade to better quality buildings. Dexus 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. And as you can see from the slide in front of you now, we've 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. Dexus 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, the $15 billion pipeline I mentioned earlier, with the planning progress at a number of these projects. What are they? The key projects in this development pipeline are, first, Waterfront Brisbane, which is a major redevelopment of the Eagle Street Pier site in Brisbane, and it will make way for 2 office towers, creating a vibrant retail and public space for the city. In Sydney, Central Place is a large-scale mixed-use development integrating a pedestrian and transport solution above Central Station. Right next door to that in Sydney and, again, the Central Station is the Atlassian development, which will push the boundaries of what the future workplace looks like and how it works adopting leading sustainable credentials. And both those 2 projects are very much in the New South Wales technology precinct, which is being developed at that end of the city of Sydney. Again, in Sydney, the Pit and Bridge Street Precinct is a significant future office tower development in the financial core of the Sydney central business district. And then in Melbourne, 60 Collins Street, Melbourne, which is the old Reserve Bank Building, will create a premium grade office tower across the road from our recently completed development. And for those of you who visit Melbourne, it's an outstanding development to visit at 80 Collins Street. So 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. In terms of long-term value creation, environmental, social and governance, or usually called ESG principles, are integrated across our business operations and continue to grow in importance for our customers and for our investors. And obviously, a very important part of the political debate at the present time. We are focused on managing ESG risks and opportunities while progressing our sustainability approach. The slide in front of you now shows our achievements across key areas of our business for the year and shortly we'll show you a video covering this in more detail. Recognizing the urgency to act on climate change, we have brought forward our net zero emissions target from 2030 to 30th of June 2022, in less than a year's time. Through this action, which is a key focus for a number of our investors and customers, Dexus estimates it will avoid a further 1 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. And there's an enormous amount of information -- extra information in our sustainability report, which is part of our annual report. In terms of being positioned for growth. We have an experienced management team that continues to deliver on strategy. And they've demonstrated their ability to capitalize on opportunities while also being able to address challenges, and they've demonstrated that over a long period of time. So before I move on, I'd like to address the topic of remuneration. While a 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 the remuneration report. The remuneration decisions made by the Board in fiscal '21 were focused on ensuring key executives are retained and motivated while recognizing the importance of strengthening our senior leadership succession planning and maintaining stability within a highly competitive, very highly competitive market for talented executives. We are dealing with an uncertain and complex operating environment and refocusing our strategy for funds management to drive long-term security holder returns, reinforcing the rationale for our decisions to retain key members of our executive team. These 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. And what you've heard in my address today, Dexus has performed well across all financial and nonfinancial areas throughout fiscal '21, including its financial performance during the COVID crisis and across key nonfinancial 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, through our funds management business which provides a capital efficient way to increase our exposure to growth sectors and our substantial city-shaping development pipeline, which I described earlier. 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 30th of June 2022. In a moment, I'll pass on to Darren to provide his address. But in the meantime, the following video covers our key fiscal year '21 achievements in the ESG space, which I alluded to earlier. [Presentation]

Thanks, Richard, and good afternoon, everybody. Despite the current complex operating environment, we have had an active quarter across our business. It is encouraging that with increased vaccination rates, there is a road map 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 meters 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 inquiry 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 higher 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 orientated real estate with embedded development potential. We acquired a further health care property for Dexus Healthcare Property Fund and now have $1.8 billion of health care 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'd 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. Thank you.

Thanks, Darren. Now at this stage of the meeting, we come to the part where we ask if anybody has -- any unitholder has a question they'd like to ask regarding any of the issues we've touched on so far before going on to the formal business of the meeting. Before I ask unitholders online to ask questions, we also asked prior to the meeting unitholders to submit any questions they had through a Q&A process through the registry, and I have a number of questions there, which I'll deal with first. So the first question that we have, and I'll just read it out, office buildings were the main priority in the past for Dexus. What does the future hold after COVID? So in response to that, we'll clearly continue to maintain our leading exposure to quality office assets as we build out key projects in our development pipeline, some of which I've mentioned. But you've also heard in my address today that we're undertaking more activities in managing properties on behalf of third-party clients in our funds management business. So we expect this side of our business to continue to grow and be a larger contributor in the years ahead across diversified asset classes. If you look at Dexus today, and I mentioned at the start of my address that Dexus today, through its balance sheet and through our funds management business, manages $42 billion of assets. So of that $42 billion, office assets are $26 billion, industrial assets are $8 billion, and we can expect that to continue because we also have a substantial pipeline of development in the industrial space. Retail assets, which are mainly in our funds business, are $6 billion, that's shopping centers and so on. And then health care, which is a rapidly growing investment sector, our health care fund is now over $1 billion. So we can expect continued diversification of the portfolio as has been occurring. In terms of office itself, as I mentioned in my address, in relation to office, many companies are looking at a hybrid or blended model, and Darren mentioned this as well, that allow us greater flexibility for employees to work from home, but where quality offices continue to play an important role. And we'll see that process play out as the health restrictions are moved, and we get back towards normal. I mean, we expect a substantial return of office workers to the office, but the use of the office will be different. There'll be probably more space per person, things like that. And we will keep unitholders up to date as to how that develops. The next question, which is a related question, which I'll ask Darren to talk about, is with the return to business occurring, what are the strategies that Dexus intends to employ to assist business in Australia to return COVID safely to their workplaces?

Thanks, Richard. I mean the good thing about this is we've had a practice run last year, so it's nothing new for the business. Dexus has been providing a safe work environment for its employees, customers, and our workplaces. Every one of them has a COVID-safe plan in place. The teams throughout all the assets, whether it be office or industrial or retail for that matter, depending on what's been shut down, have been working with the customer bases about how they're going to operate once they do start to come back. I think what we're clearly going to see people are starting to filter back into the offices this week. There's already more people in Sydney this week than there were last week with the restriction of the masks that you don't have to wear indoors now. However, from discussions with our customers, we expect en masse people to be back more or less after Australia Day next year. Other things we're working on with regard to fit-outs are the people when they've been renewing. And pleasingly, most people are renewing in the same space. We aren't seeing a lot of people reduce space. And as Richard previously said, people are doing their fit-outs a bit differently, more collaboration spaces, more meeting room spaces. So when you look at the amount of people renewing, I think we are very comfortable at this point in time that we have the right strategies in place with our customers to ensure a smooth return to the workplace. And as I said, most of that will be in the first quarter of next year.

Thanks, Darren. The next question, which I suspect is from one of our Brisbane unitholders, now that planning approval has been received for Waterfront Brisbane from Brisbane City Council, what is the estimated completion date of this world standard business and tourist destination project? So Waterfront Brisbane, as the question alludes to, will actually deliver a great outcome for Brisbane with the renewal of the city's premium business district, a vibrant retail and public space, activation of the river, improvements to the Riverwalk. And we all recall, pre COVID, the restaurants along the Riverwalk and so on. There's 2 towers involved in the development. The towers will be developed one after the other, and we are hopeful that the first tower will commence next year 2022. After achieving some initial leasing and finalization of building contracts, and this tower would then be on track to complete in late 2026. Second tower would then follow subject to achieving pre-leased prior to commencement. All up, it's probably around about a $2 billion project. So a very important project for the city of Brisbane. Now that's the questions we received on the Q&A. Now I'll turn it over to David, who will now take any questions coming through the broadcast.

Thank you, Mr. Chairman. There's a question from Stephen Mayne asking about resolution 4. Which law firm advised on the constitutional amendments? And are we going to pay their bill, given the item had to be withdrawn yesterday after our positions from proxy advisers and shareholders? What percentage of proxies cast were against the proposal? And what were you thinking in proposing a constitutional amendment that could have allowed future AGMs to be online only? Whose idea was this?

I think from memory, like it was 25% or thereabouts of proxies against the proposals, maybe 1/3. So there is a majority in favor of the proposal. I think the law firm was KWM. We initially thought it would be very uncontroversial proposal in the sense that -- and I had some discussions with the Australian Shareholders' Association, who I think Mr. Mayne represents, where I undertook, but unequivocally that so far as Dexus is concerned, we would always hold meetings in person and would only ever hold virtual meetings where the health orders prevented us from holding a real meeting. I do note I actually did look at the Australian Shareholders' Association website, and that's precisely the policy of the Australian Shareholders' Association, so I'm surprised that it's controversial. But we withdrew it because there did seem to be a significant number of unitholders who had some concerns about the proposal. I don't really understand why. But it just means that it will make it a little bit more complicated for us to have a meeting in the event that there are health orders, which hopefully there are not. And as I repeated a number of times, we cannot wait to have real meetings and have a cup of coffee with our shareholders after the meeting.

Mr. Chairman, there's a comment from John Cowling. Congratulations to management and Board for an excellent result and an outstanding annual report.

Thank you for that, sir. And I do commend the annual report, including the sustainability report, to all shareholders. It's got a great deal of extra information in addition to what we've been talking about today.

And do we have any questions on the phone line?

Showing no phone questions at this time.

Thank you, Mr. Chairman. There are no further questions relating to general business.

All right. If there are no further questions on general business, let me now turn to the formal business of the meeting. Today's meeting has been convened in accordance with the constitution of each trust and the Corporations Act. And I have been informed by the registry, Link Market Services, that a quorum is present to enable the formal resolutions, the subject of the meeting to be considered and passed. I'd also like to table the 2021 annual report, which includes -- which we just talked about, which includes the director's report, financial report and independent auditor's report for the financial year ended 30th of June 2021. In accordance with the Notice of Meeting and voting form, for instances where I, as Chair, have been appointed as a proxy, but not directed how to vote, I will vote in favor of all resolutions. And as we've just mentioned and discussed, we withdrew on resolution #4. The way we will run the meeting is that we will go to a poll on all resolutions and look at each resolution and the proxies received individually, at which time you will have the opportunity to ask questions or make comments about each resolution. Unitholders would have received the Notice of Meeting, which sets out the resolutions and the accompanying explanatory memorandum, which provides security holders with information to assess the merits of the resolutions. So let me now turn to resolution 1. Resolution 1 is an ordinary resolution and concerns the adoption of the remuneration report for the year ended 30th of June 2021. Under the Corporations Act, a listed company is required at its AGM to put to its shareholders a resolution to improve -- to approve its remuneration report. Consistent with our corporate governance framework, the Board has determined that Dexus will be subject to this obligation even though it is a listed stakeholder group comprising real estate investment trust, that is, it's not a listed company. The vote on Resolution 1 is advisory only and does not bind the directors of Dexus or Dexus Funds Management Limited. The proxies received are detailed on the screen now and represent approximately 77% of issued capital. And you'll see from the proxies that we now -- that we have over 25% of votes against this resolution, in fact, a majority against the resolution. So as a result, this is a first strike. The vote was influenced by the recommendations of all of the proxy advisers who did not support this resolution. As I mentioned before, we value the views of our security holders, and will undertake further engagement to listen and consider all feedback when making remuneration decisions in the year ahead. I've already made some comments about remuneration in my address earlier. Before I turn to questions on this resolution, let me address 2 main issues raised by proxy advisers, which related to the one-off retention awards and the consistency of payouts for short-term and long-term incentives. The quantum of the retention awards was determined by information available to the Dexus Board at the time, some of which is subject to confidentiality. The COVID-19 pandemic has, as everybody knows, presented challenges to the group and the real estate industry more broadly, requiring significant leadership stability, expertise and experience to navigate over the next few years. The risk and costs associated with turnover and the high level of competition in the domestic and regional real estate employment market for leaders with proven skills, experience and reputation were factored into our remuneration decisions. The preference for one-off equity retention awards that are at risk as opposed to traditional remuneration package increases was designed to enhance our executives' alignment to security holders' interests through increased equity exposure. The Board also considered a number of external reference points, and including the introduction of the retention awards, the total annual remuneration of the executive concerned is comparable to peers. Regarding the consistency of incentive payouts, the Board believes historical short-term incentive and long-term incentive outcomes have demonstrated an appropriate link between pay and performance against targets set each year. Prior to the year ended 30th of June 2020, Dexus' STI and LTI outcomes were persistent as they reflected the consistent outperformance that Dexus has achieved for security holders. Where outperformance has not occurred, such as in fiscal -- the year ended June 2020, which was the year that was very substantially affected by COVID, the STI outcome was substantially reduced and executives also took a pay cut that year, reflecting the challenging economic conditions in the last quarter of 2020 due to the pandemic. The remuneration report also notes the anticipated lower long-term incentive vesting outcomes in future years due to the lagged impact of COVID-19 on the business. Full details in relation to the -- our approach to remuneration is set out in a lot of detail in the remuneration report. So having made those introductory comments, let me now turn to questions in relation to resolution 1 and ask if there are any questions.

Mr. Chairman, we have a question from the Australian Shareholders' Association. Given the CEO has been with the company for 9 years, what is the justification for requiring a 3-year retention bonus of $3.5 million? What sort of succession planning is taking place?

Okay. First, Mr. Steinberg's joined the company in 2012, coincidentally the same year I joined the company as a director. Since 2012, the distributions have risen every single year for security holders. Every single year, with the exception of 2020 when we're in the middle of an unprecedented pandemic. And even in that year, distributions were maintained at the same level. And as I mentioned earlier, distributions to shareholders have grown at a compound rate of 5.5%. During that time, the portfolio has increased, the funds management business has increased. Dexus has achieved great scale and has outperformed peers. The -- so there are some points about the business. The fourth point I'd make is that there is a very substantial increase in demand for talent in the market. Everybody who's familiar with the real estate markets would understand the amount of liquidity, which particularly unlisted players are bringing into the market. Those players are bidding for talent, and they're bidding big prices for talent. Fifth point is that Dexus is a business in transition, which I've described today. There's a lot of work to be done. Mr. Steinberg is a very experienced, highly regarded and successful Chief Executive for Dexus. As I mentioned before, we have consulted widely with unitholders in terms of -- and did not make the remuneration decisions that we took in isolation. Virtually, without exception, the unitholders we spoke to were complementary and supportive of our management team and of initiatives by the Board to retain them. Sixthly -- or seventhly, I'm not -- forgotten what number I'm up to, Darren's fit, healthy, young and has many plenty more to contribute to Dexus. So in those circumstances, the Board had no hesitation in believing that it was strongly in the shareholders' interest that those retention payments be made. And as I mentioned in my Chairman's address, that even if you take into account those retention payments and then you look at comparable remuneration for other comparable executives in the market, which we do in great detail, he is not paid out of the market.

Thank you, Mr. Chairman. There is a question. I'm basically reading out all the questions that are asked. So you may have addressed some comments in that prior question. This question is asked by Stephen Mayne. Can the Chair, Richard Sheppard, please explain why you've been permissive with executive pay at Dexus over the years, culminating in today's protest vote of 65%? Are you trying to create another millionaire's factory? After years of big bonuses, why did we then go with the excessive retention payments? In light of today's developments, is the Chair planning to retire in the near term, particularly given the scandals unfolding at Star Entertainment?

Well, the Chairman is also young and fit and has plenty to offer Dexus in the future. So thank you for your question, Mr. Mayne. The -- I think I probably answered the issues on remuneration. Dexus' remuneration is not out of line in the market. To the extent that incentives have been paid, it reflects consistent performance on the part of Dexus. In relation to any concerns about remuneration, we've undertaken to continue, as we always do, to consult with the unitholders.

There are no further questions in relation to resolution 1.

If there are no other questions in relation to question (sic) [ resolution ] 1, I'll now turn to resolution #2. Resolution 2 is an ordinary resolution and relates to the grant of fiscal 2022 long-term incentive performance rights to the Chief Executive Officer. Again, we're not required to seek security holder approval for the grant of performance rights as we buy the Dexus securities on market. However, for transparency and good governance, the Board has determined to seek security holder approval for the grant to be satisfied. These performance rights are subject to meeting Board-approved hurdles over 3- and 4-year periods. The proxies received are detailed on the screen and represent again about 77% of the issued capital. You would notice in the remuneration report this year, we have changed the LTI performance measures as a result of previous investor and proxy advisers consultations on the duplication of AFFO in both the STI and the LTI. So the majority or 80% of the LTI is based on key financial metrics comprising absolute total security holder return and return on contributed equity. However, the Board strongly believes that introducing a small nonfinancial component will focus key executives on the execution of Dexus' strategy over the long term. So together with absolute total shareholder return and return on contributed equity, the strategic measures focused on providing enhanced value creation to investors have a clear linkage between pay and performance and encourage key executives to drive sustainable business performance. The measures also provide a focus on navigating the challenges in the office market and maintaining Dexus' market-leading position in ESG practices. Are there any questions in relation to resolution 2?

Yes, Mr. Chairman, we have a question from the Australian Shareholders' Association. So the ASA takes issue with the requirements for awarding the 20% strategic bonus as these measures are more in line with average satisfactory performance of one's role and should be included in fixed remuneration. What is the justification for this?

Well, again, this reflects consultation that we've had with unitholders. On many of these things, there are different views. But the point I'd make is that -- well, we've got to make a couple of points. First of all, in the remuneration report, the -- it sits out in detail. I think there's about 13 criteria that the Board will take into account when assessing the strategic measures at the end of the performance period. And many of these initiatives are important not only to near-term corporate performance, but many of these decisions affect how the company performs over the next decade. So for those reasons, getting these things right can have a very material effect on future performance. So the Board felt that including a small component, 20% of the total long-term incentive, does link to Dexus' long-term performance and it's in the interest of shareholders that the Board, in a structured way, both incentivizes executives to have their mind on the longer term and rewards them if they get those types of initiatives right.

Thank you, Mr. Chairman. There's a further question on resolution 2 from Stephen Mayne. There was also a 30% protest vote against the LTI grant. Could Darren please comment on how he will respond to this message for shareholders?

I don't think it's appropriate for myself to comment on that.

Yes. And look, I think we've commented generally on remuneration matters. So thank you for the question, but I think we've answered it.

There are no further questions on resolution 2.

Thank you. Let me now turn to resolution 3. Resolution 3 is an ordinary resolution, seeks the initial appointment of Warwick Negus. And Warwick is sitting beside me here in Sydney as an independent director. The proxies received are detailed on the screen and again represent about 77% of issued capital. Before we turn to questions relating to this resolution, I'll now ask Warwick to present to the meeting.

Thank you, Richard, and good afternoon, security holders. I was really pleased to have been invited to join the Dexus Board in January 2021. During the course of this year, in addition to the Board commitment, I have also joined both the Audit and Risk committees. My executive career was largely focused over 30 years in funds management and investment banking, both in Australia and overseas. I've been responsible for large multi-asset global businesses and small entrepreneurial domestic businesses. My most recent executive position was as the Chief Executive Officer of Colonial First State Global Asset Management, at the time the largest fund manager in Australia and a significant player in real estate markets. I also spent a considerable part of my executive career with Goldman Sachs and Bankers Trust Australia. My first nonexecutive position was as a director of Century Australia in 2004, a listed investment company. I was also formerly a director and chair of URB Investments Limited. I'm currently a member of the Board of the Bank of Queensland, Washington H. Soul Pattinson and Company and the Pengana Capital Group, where I am the chair. I also serve on the board of several unlisted companies and in the not-for-profit sector, where the time commitment is considerably less. The Australian Shareholders' Association has also requested that I address my time and capacity commitments to the Dexus Board. I have more than adequate time available to fulfill my responsibilities as a director. I do not miss Board or committee meetings, and I'm constantly involved in additional discussions with management on ideas for execution and overcoming complex transactions. As some of my other assignments come to an end, I do not intend to take on any other Board assignments. I believe that I have depth of experience and familiarity with Dexus to make a considerable contribution. The post-COVID era provides a considerable challenge to this company and its industry, and I look forward to working with a highly talented management team and an effective Board of Directors to help make the decisions expected by our security holders. Being a director of Dexus, for me, is a privilege that I do not take lightly. I will devote the necessary time and energy to this role to ensure that we continue to deliver the returns that you, our security holders, expect. Thank you.

Thanks, Warwick. Are there any questions relating to resolution 3.1?

Yes, Mr. Chairman. There's a question for Stephen Mayne. When disclosing the outcome of reelection and other resolutions today, can the Chair comment on whether you support the idea of publicly disclosing how many shareholders voted for and against each item, similar to what happens with the scheme of arrangement?

We do that. Not only do we do that, but I've actually discussed with Mr. Mayne on previous occasions and advised him that Dexus pursues that practice.

Thank you, Mr. Chairman.

Are there other questions?

Yes, there is another question. A question from Stephen Mayne. Why was there a 9% vote against Warwick's election when he has only been on the Board since January? Which proxy adviser recommended against him?

Well, no proxy advisers recommend against him. Why did people vote against it, frankly, you really would have to ask the people who voted against him. I don't know.

There are no further questions in relation to this resolution.

Thank you. We will now move to resolution 3.2, which is an ordinary resolution and seeks approval of independent director, Penny Bingham-Hall, who is participating in the meeting via virtually. The proxies received are detailed on the screen. Again, represent 77% of the issued capital. And before we turn to questions relating to that resolution, I'll ask Penny to present to the meeting.

Thank you, Richard, and good afternoon, everyone. I've had the honor of being a member of the Dexus Board for just over 7 years. As a nonexecutive director who served on many private and public sector boards, I believe, I bring governance experience and have also worked for large publicly listed companies for over 30 years. I bring specific industry knowledge from over 20 years as an executive in construction and property development. I draw from many years of experience in operational areas such as safety, human resources, risk management, sustainability and project development. During my time on the Board, I've been a member of the Board Risk Committee and more recently joined the newly formed Board ESG Committee, which has supported the decision to bring forward our target to achieve net zero emissions by the end of this current financial year. I have also been Chair of the People and Remuneration Committee for the past 4 years. It's never an easy job balancing security holder expectations with management's expectations around being rewarded fairly. As directors, we are charged with doing what we believe is in the best interest of the company. And a key part of this is appointing and remunerating executives. I believe we have a best-in-class management team, which is highly valued by the market. However, we have clearly not met security holders' expectations around remuneration this year. I want to assure you that message has been heard and is one for me and the whole Board to seriously reflect on. We will reengage with security holders and take action as appropriate following that consultation. Since I joined the Board in 2014. The company has more than doubled its assets under management from around $18 billion to over $40 billion. Our directly owned properties on the balance sheet have increased in value from $9 billion to over $17 billion. The properties we manage on behalf of third parties has increased from $9 billion to $25 billion, and net tangible assets have increased from around $6 to $11.42 today. Our development pipeline has also grown substantially from around $3.5 billion when I joined the Board to over $15 billion today, all the while keeping gearing at the lower end of our target range and maintaining strong growth in distribution. It's an enviable track record financially, but importantly, this has been achieved at the same time as we've seen a big improvement in our customer satisfaction ratings, our employee engagement scores and global ratings in sustainability. I'm honored to have served on the Dexus Board for some years and seek your support for another term. I look forward to a meeting again in person at our AGM next year. Thank you.

Thanks, Penny. Are there any questions in relation to resolution 3.2?

Yes, Mr. Chairman, I'll direct these questions to you and then Penny may be able to join in the conversation. So the question is from Stephen Mayne. As Chair of the Remuneration Committee, could Penny please justify how a CEO with years under their belt could justify a $3.5 million retention payment?

Well, I think I've actually specifically responded to that question. So I really don't have anything further to add. Penny, would you like to respond?

Look, I think, Stephen, these issues are never straightforward. We did go out to the market early. This -- Richard and I have spent a number of -- we had quite a few meetings with security holders around the retention issues that we had both with the CEO and some of our senior management team, which were confidential in nature. It really is, I guess, a negotiation between the Board and management. But given the high level of uncertainty that we've got in the market, the very strong team we have and the sort of succession planning issues we came up, as I just said, we believe that what we did within the best interest of the company. We have heard loud and clear that not all security holders, in fact, the majority of our security holders don't agree with that. And I think it's obviously inherent on myself as Rem Chair, but also with my colleagues on the Board to really spend some time reflecting on that in ensuring that we do better next year.

Are there any other questions on?

There's a further question from Stephen Mayne. Does Penny agree that it doesn't make sense for investors to vote 65% against the remuneration report but then only vote 10% against the Chair of the Remuneration Committee? Did Penny have any direct dealings with proxy advisers over their recommendations on her reelection?

Look, I didn't have any direct communication on my reelection. I think a lot of -- or our security holders understand that remuneration is a full Board decision. And look, I'm very thankful, I guess, that it was. There's obviously a large vote against the remuneration report, but I think most of our security holders understand that the whole Board is involved in those decisions of remuneration, and it's not just the decision of the Chair of the Rem Committee.

I mean the vast majority of proxy advisers, with 1 exception, supported Penny's election.

There's 1 more further question. Mr. Chairman. When Penny was at Leighton's, they built Star Sydney, wanted to build Crown Melbourne and also built a number of casinos in Macau. Given Penny's presence on the newly formed ESG Committee, what is Penny's view about Dexus owning or managing gambling assets such as pubs or casinos?

Well, look, Dexus doesn't manage pubs and casinos. So the question's irrelevant. Thank you. Are there any other questions?

There are no further questions.

Thank you. Let me now move to resolution 3.3. Resolution 3.3 is an ordinary resolution, seeks the initial appointment of Tonianne Dwyer -- or the reappointment of Tonianne Dwyer as an independent director. Let me just provide a couple of comments in relation to this resolution. It was originally intended that Tonianne would step down from the Board at this AGM having served 10 years as a director and making an outstanding contribution to the Board over that time. including in recent years as Chair of the Board Risk Committee, where she puts in an immense amount of work. The Board has asked Tonianne to stand for reelection and delay her departure from the Board until next year's AGM. And in the meantime, we are progressing our Board renewal strategy. The proxies received are detailed on the screen and represent, again, 77% of issued capital. Again, before we turn to the questions relating to this resolution, I'll ask Tonianne to present to the meeting from Brisbane.

Thank you, Richard, and good afternoon to all security holders. As Richard mentioned, I'm speaking to you today from Brisbane, and hopefully, we'll see the end of restrictions over the coming months and will be able to travel and meet in person next year. And we're all certainly very much looking forward to that. I've been on the Board of Dexus since mid-2011. And with my colleagues' support, as Richard mentioned, I'm standing for 1 further year. I joined the Board just prior to Darren's appointment, so I have had the pleasure and privilege to be involved in the transformation of Dexus into the leading real estate company that it is today. During my tenure on the Board, we have reset and evolved the group's strategy, improved the quality of the assets in the portfolio, built an excellent management team and nurtured a positive and inclusive high-performance culture. The outcome has been some outstanding results for security holders over the years. More recently, the pandemic has obviously presented challenges for the business, but the management team has faced these challenges with skill and sound judgment. We've looked after our people and our customers, and we will emerge a stronger business for having done so. The pandemic has also provided a catalyst to accelerate the growth of our funds management business, the results of which you can see in the growth of the assets we have under management, the diversification into the health care real estate market and the acquisition of APN Property Group earlier in the year. Although I'm only standing for a final year, my enthusiasm and commitment to Dexus is unchanged. If reelected, I look forward to serving your company to the best of my ability as we continue to work our way through this period of change and challenge and position Dexus for the future. Thank you very much for your support for my reelection.

Thanks, Tonianne. David, do we have any questions in relation to resolution 3.3?

Yes, Mr. Chairman. There's a question from Stephen Mayne. I think it's following the last question that was asked. Charter Hall has agreed to buy ALE, a large landlord of pokies pubs in Australia. Could Tonianne comment possibly on her view about ESG investment as it relates to the gambling industry? Would, for instance, Dexus consider buying Crown's property assets? Or do we have a negative screening on gambling properties? Could the Chair also comment on this?

Well, we're certainly not contemplating any transactions of that nature. We don't have a policy ruling it out, but it's not in contemplation. Look, I believe there might be 1 or 2 pubs that actually exist as a small part of some of their assets, but it's a minute part of Dexus' core business. The -- no, we don't have a policy ruling that out, but there is absolutely no contemplation of being involved in that business whatsoever. Tonianne, would you like to -- you've been asked to comment, would you like to comment?

I'm very happy to comment only to point to the strategy that we have laid out in all of our public documents and today in this presentation. And gambling assets and pubs have not been expressed as being part of that strategy. So I don't know what's behind Stephen's question, but I don't think it's relevant to Dexus' strategy today. Thanks, Rich.

Are there any other questions?

One further question from Stephen Mayne. Since 2019, Treasury Wine Estates has voluntary moved annual elections for directors in line with best practice that occurs in the U.S. and U.K. Dual listed companies like News Corp, BHP and Rio all do this due to the laws in the U.S. and the U.K.. What does Tonianne think about this idea, given she is only planning to serve for 1 year? Could the Chair also comment on whether Dexus will consider following suit to lead by example on governance by being more regularly accountable? Such a move would also assist with managing Chair succession.

I don't think it's relevant to Chair succession. No, we're not contemplating it. We're not subject to the rules of the U.K. and the United States. And are we accountable? Absolutely. And we will continue to remain accountable to investors the way that we always are. Did Mr. Mayne want Tonianne to comment?

Yes, what did Tonianne think of this idea?

I don't have anything to add. It's not common practice in Australia, and it's certainly not something we have discussed as a Board. But we will watch developments with interest. I'm sure.

Right. Well, thank you, Mr. Mayne for your questions. Are there any other further questions?

There are no further questions, Mr. Chair.

All right. If there are no further questions relating to that resolution, in terms of today's meeting, once the votes are collected and counted today, we'll announce the final poll results for each resolution to the ASX and have them available on our website after the meeting. if there are any further questions that shareholders want to ask about anything we've sort of opened to them, otherwise, we're approaching the end of the meeting.

There are no further questions.

All right. Having received no further questions, before I close the meeting, I ask that you complete your voting now if you haven't done so already. And remind you that the voting system will close 5 minutes after I formally close the meeting. So having said that, that ends the formal part of today's meeting. I'd like to thank you, our security holders, for your continued support and for participating in the meeting today. And as I emphasized at the start of the meeting, we look forward to seeing you in person, hopefully, at next year's annual general meeting. So therefore, I formally close the meeting, and thank you all for your involvement.