DEXUS (DXS) Earnings Call Transcript & Summary

Thank you for standing by. Welcome to the Dexus FY '23 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Darren Steinberg, CEO. Please go ahead.

Good morning, everyone, and thanks for joining us today for our 2023 full year results presentation. I'd like to begin today by acknowledging the Traditional Custodians of the lands on which we operate and pay respects to their Elders, past and present. Today, you'll hear from Keir on the financials, Deb on our funds business, Andy Collins, who we welcome as the new EGM for Office, Stewart on Industrial and Ross on transactions in our development pipeline. We'll then finish with any questions you may have. Our vision is to be globally recognized as Australasia's leading real asset investment manager. Our strategy is delivered through our strategic objectives of resilient income streams and being an investment manager of choice with access to diversified pools of capital, ensuring our ability to operate through economic cycles. We have built a scalable and efficient business across a fully integrated platform. And all of this is underpinned by a commitment to ESG and prudent capital management. This year, we added $18 billion to funds under management via the acquisition of AMP Capital with the total platform now having grown to $61 billion. As you can see, we have scale across the real asset spectrum, including a high-quality real estate platform and a meaningful infrastructure business. Scale is important to the growth and performance of our business. It gives us the ability to attract, retain and develop talent and people. It helps us to gain insights and deliver solutions to our customers and third-party capital partners and it provides the ability to invest in systems and processes. As a result of the AMP transaction, we have bolstered our capabilities in each sector. In a challenging environment, we have maintained strong office occupancy above 95% and our industrial portfolio is virtually full, which ensured strong cash flows with AFFO of $555 million. We continued our asset recycling strategy, selling 43 assets across the platform, of which the balance sheet represented $1.8 billion. Our balance sheet is in good shape, with gearing of 27.9%, and we continued to maintain high hedging levels. In our funds management business, we raised $1.6 billion of new equity and launched an Airport Fund. We also have a track record of actively divesting on behalf of our funds, having sold $4.5 billion of assets over the past 3 years. We continue to be globally recognized for our leadership in ESG. We also launched our renewed sustainability strategy, which is supported by the priority areas where we believe we can make significant impact. I'll now pass you on to Keir to cover the financials.

Thanks, Darren, and good morning, everyone. Turning to the composition of the result. Through a complex operating environment, we've continued to diversify our earnings with the contribution from management operations growing significantly and an elevated result from trading this year. Combined, these earnings streams considered more active in nature, account for 17% of FFO. While office property income now contributes 62% of FFO, given the impact of divestments. It has been an unprecedented year of interest rate rises with 10 rises in 12 months, taking the RBA cash rate from less than 1% at the start of the year to 4.1% today. In light of this increase, naturally, there has been a fall in asset values with cap rates expanding by 47 basis points across our portfolio, driving a $1.2 billion or 6.9% reduction on prior book values for the 12 months to 30 June. To put this in context, this offset circa $1 billion of gains made in the prior year. The value of the office portfolio reduced by 8.8% compared to prior book values, which was driven by higher cap rates, partially offset by market rental growth. The industrial portfolio was broadly flat compared to prior book values, with strong rental growth largely offsetting the impact of higher cap rates. Turning to the result in detail. Office property FFO decreased this year, primarily due to the impact of divestments and nonrecurring income on development impacted properties in the prior period. Conversely, industrial property FFO increased due to recently completed developments and a full period contribution from Jandakot, partly offset by divestments. As a result of new investments in AMP Capital Funds, income from co-investments increased this year. FFO from management operations also increased significantly to $113 million due to development milestones being achieved as well as the AMP Capital transaction, which reached first completion in late March. This transaction also increased group corporate costs. Higher floating rates drove an increase in net finance costs and were the primary driver of the 6.3% reduction in underlying funds from operations. Trading profits were strong in FY '23 at $50 million post-tax and are expected to be lower in FY '24. Overall, AFFO and distributions reduced by 3% to $0.516 per security, which was at the top end of our guidance range. Property devaluations, combined with the acquisition of intangible assets and transaction costs associated with the AMP transaction drove an 11% reduction in NTA to $10.88. Moving to capital management, where our disciplined approach has maintained a strong balance sheet in a market with significant volatility. Against that backdrop, it's pleasing to have arranged $2.6 billion of facilities during the year, including the exchangeable notes, which diversified our funding sources in an uncertain environment, while securing 5-year fixed rate debt. At 27.9%, our gearing remains below the 30% to 40% target range. Over the year, 86% of our debt was hedged with a weighted average maturity of 4.8 years, providing material interest rate protection. And we are well-positioned with $2.5 billion of cash and undrawn debt facilities. Including the proceeds of contracted transactions, settling post 30 June, our headroom has increased to circa $3.3 billion. While our committed development spend is $2.2 billion over the next 5 years and we have around $100 million of committed co-investments in our managed funds. Fully funding these commitments would see gearing increase to around the midpoint of our 30% to 40% target range in the absence of further asset sales or valuation movements. With the balance sheet well-positioned, we will continue to recycle capital to provide capacity to invest in value-creating and portfolio-enhancing opportunities, while maintaining a strong balance sheet. Thank you, and I'll now hand over to Deb.

Thank you, Keir, and good morning, everyone. Our funds business has evolved into a diverse real estate and infrastructure platform, consisting of various products and catering to many investor types. We added $10 billion of infrastructure and $8 billion of real estate investments via the AMP Capital transaction. And in aggregate, these funds have grown since first completion. Third-party funds under management now totals $43.6 billion, up 68% from FY '22. Our real asset funds benefit from a prudent approach to capital management with average gearing across the pooled funds at circa 25%. We have purposely broadened our asset classes, investor channels and capability set, while we've grown funds under management, making us fit for purpose to fulfill investor strategies. Like many other funds around the globe, we are dealing with redemptions. We have a variety of funds on our platform, all with specific situations. Fortunately, we've been an active seller in the past few years and have a strong track record of delivering liquidity and doing the right thing by our investors. We've satisfied $2 billion of redemptions this year. As part of the integration of the AMP Capital Funds, we're streamlining our business and our operations to drive efficiencies. Our target remains to deliver a 60% margin on our fund management earnings. Our investor base, which includes institutional, wholesale and retail investors is increasingly diversified. Offshore investors have grown significantly, adding $8 billion of funds under management in the past 5 years and now represent 26% of funds under management and we are expecting further growth. Our global roadshows provide a valuable insight into investor and market sentiment. This year, we learned that many investors are positioning themselves for investment in anticipation of a peak in the interest rate cycle, asset valuations turning and the anticipated listed security market recovery. There is increased investor appetite in healthcare, living, credit and alternative investment opportunities and we have investment options on our platform to cater to all these interests. It's important to note, though, for institutional investors, while Australia's fundamentals are seen as favorable, on a relative basis, asset pricing has become significantly less attractive compared to global markets. Turning to the highlights for this year, we raised $1.6 billion across 14 vehicles with strong interest in our healthcare and opportunity funds. Our new wholesale airport fundraising was oversubscribed, providing further capacity for investment into the fund. We onboarded 23 new institutional and private wealth groups to our products. We delivered on the growth strategies of our healthcare fund and 2 infrastructure funds by increasing our platform investment in the Royal Adelaide Hospital. And importantly, our focus on ESG gained 3 of our funds, global recognition by GRESB. From an asset class perspective, there is a wide opportunity set for us to deploy third-party capital. These include workplace, which captures the traditional real estate sectors of office, retail and industrial, transport and energy, which are pure infrastructure plays. And the more interesting niche sectors of healthcare and social that sit between the 2. All of these 5 verticals are benefiting from the key megatrends of urbanization, social and demographic change and mirror the themes sought after by our investors. Thank you, and I'll now hand you to Andy.

Thank you, Deb. Good morning, everyone. The $12.3 billion office portfolio represents 71% of our balance sheet and is concentrated in the highest quality markets. We have achieved strong results in an operating environment that continues to present challenges. Occupancy is high at 95.9% and the weighted average lease expiry across our stabilized portfolio continued to hold at 4.8 years. Incentives are up marginally to 30% and are expected to remain at that level in the near term. Lessing inquiry was steady with increased activity from smaller tenants. Our leasing volumes across the stabilized portfolio were up 40,000 square meters and we continue to benefit from the flight to quality and in Sydney, the migration to the core. 57% of new deals involved customers upgrading to higher-quality assets. Base brands grew during midyear and on an effective basis, our like-for-like income growth also improved to 5.6%, mainly driven by improved occupancy in Melbourne. Although, activity is up in Melbourne, the CBD remains behind other capital cities in the return to the office. Moving to our expiry profile. A lot of work has been done to derisk the forward profile, including through the retention of KWM at One Farrer Place in Sydney and BHP at 480 Queen Street in Brisbane. Current vacancy and near-term expiry risk is concentrated in core CBD markets. Our diversified customer base presents limited concentration risk with our top customer, representing 3.2% of income spread across a number of tenancies. Our top 10 customers combined represent 17.5% of income. Only 30% of income is derived from large customers, those greater than 10,000 square meters. While softening business conditions present headwinds in the near term, the map on this slide demonstrates the importance of location and shows at least in part, the impact of recent asset sales and improving portfolio composition. Most of the market vacancy in Sydney is concentrated in the Western Corridor and Midtown precincts. The average occupancy rate of premium space in the Sydney CBD core market is the highest of the 4 precincts at 90%. In the Dexus portfolio, our premium buildings are 98% occupied, evidence of the flight to quality and flight to core, that contributes to the resilience of our portfolio in this environment. Thank you, and I will now hand over to Stewart.

Thanks, Andy, and good morning. Turning to the performance of our industrial portfolio, occupancy has hit a 5-year high of 99.4%. This was driven by continued leasing success and the sale of Axxess Corporate Park, which we traded at 7.4% premium to book value. Effective like-for-like income growth was 2.4%, impacted by downtime and reversions at 2 of our larger facilities and excluding divestments such as Axxess Corporate Park, like-for-like growth would be 3.6%. Incentives have reduced to 10.7%, and our portfolio delivered a 1-year total return of 5.2% at the 30th of June. The portfolio was 13.6% under-rented, benefiting from sustained market growth and tailwind business conditions. We continue to see examples of strong re-leasing spreads, creating the opportunity to grow income by resetting the rents on upcoming lease expiries across approximately 17% of the portfolio by FY '25. Now let's take a closer look at demand. Industrial take-up is moderating and is returning to pre-COVID levels. In an environment of softening discretionary retail activity, the bulk of this demand will be supported by categories such as medical, supermarkets and infrastructure project contractors. Looking forward, we expect to be leasing to those businesses that find tailwinds in challenging times, such as discounters and positive conversations are ongoing with many of these groups already. Net face rents across the major logistics markets have grown between 12% and 32% over the year. Vacancy rates at record lows in major markets are supporting rents. However, rent growth is expected to return to more normal levels in the year ahead. We're really pleased with the conversations we're having with customers on utilizing our development capability and national platform to support their growth requirements across Australia. By way of example, this is playing out at our Jandakot estate in Perth with the rents achieved on new leasing are at around 30% above underwriting. Thank you. And now it's over to Ross to talk to transactions and developments.

Thanks, Stu, and good morning, everyone. It's been a productive year for the team as we recycle capital to improve portfolio quality and provide liquidity for the balance sheet and our clients. Australia has not been immune to the global repricing of assets but has relative to most developed markets proved to be resilient and remained open and liquid across the major asset classes. For the balance sheet, we announced $1.8 billion of divestments across the real estate sectors, a continuation of our existing program of capital recycling, providing capacity for investment in high-returning opportunities in the development and funds management businesses, which now include infrastructure and credit. While the platform has been a net seller, we are actively deploying capital across a number of strategies with $1.3 billion of acquisitions across infrastructure, credit, health, industrial development and distressed residential. Development is a key part of our business as a source of returns, as a source of fund growth and as a way to meet the evolving needs of our customers. We are focused on the long term, and you can see that specifically in the way we have partnered with third-party capital in the pipeline, the way we've divested assets over the past 5 years to provide funding capacity and the continued investment in our team and capability. And the team really have delivered with some very exciting projects in the pipeline. Amongst the 25 active projects under construction across the group, we have the tallest Hybrid Timber construction in the Southern Hemisphere at the Atlassian development, city-shaping projects like Waterfront Brisbane, high-tech logistics facilities like Nike's new automated warehouse in Victoria and multiple health precinct developments. As a portfolio of projects, we see these as enhancing risk-adjusted returns over the long term given the flight to quality we are seeing for both occupiers and investors, the project locations and our approach to risk, specifically contracted procurement and pre-leasing. It was a strong year for trading profits, delivering $50.2 million of post-tax earnings. We expect trading profits to be lower in the year ahead, circa $10 million of post-tax earnings, partially a product of our decision to slow down the restocking of the pipeline late in the cycle. This is now a very good market to be investing in for trading opportunities and we are actively looking to restock the book, which should see trading profits improve. Thank you, and I'll now pass you back to Darren.

Thanks, Ross. Dexus is well positioned. Over the past couple of years, we have continued to diversify our business. We've created a real asset platform with strong capability across all major asset subsectors in the country. Our capital is invested in a $17.4 billion high-quality portfolio located in major cities, which generate stable core type returns. Our balance sheet supports our capacity to invest in new initiatives alongside third-party clients. Our $43 billion funds management business has access to diversified sources of capital that will organically fuel growth over the next decade. And our current development pipeline is fully funded, providing embedded future value by improving the quality of the portfolio while providing inventory to grow our third-party relationships. So to conclude, we are halfway through a challenging period, which will continue into FY '24 as capital flows and market sentiment are impacted by inflation, rising interest rates and geopolitical risks, which all contribute to prolonged economic uncertainty. Based on current expectations and barring unforeseen circumstances, Dexus expects distributions of circa $0.48 per security for the 12 months ended 30th of June 2024, below FY '23 with the reduction driven by lower trading profits. As Ross said, we chose not to restock our trading pipeline while the market was nearing its peak. Pleasingly, AFFO, excluding trading profit is forecast to be broadly in line with that delivered in FY '23. Despite the challenges, we have continued to execute on our strategy, diversifying our capital sources, growing our funds business, reweighting the Dexus portfolio, commencing next-generation developments and maintaining a strong balance sheet. As the World reverts to a normalized rates regime, we are well positioned for the future. That ends the formal part of the presentation. We'll now like to take any questions you may have.

[Operator Instructions] And your first question comes from Caleb Wheatley with Macquarie Group.

My first question was just on development. It seems like to focus particularly on the uncommitted portion on projects like 60 Collins Street and Central Place has softened somewhat over the past 6 months, just can you give an updated view on how you're seeing those sorts of projects on a go-forward basis, please?

I'll take that one. I think when we reflect in our development pipeline, I think what we're pleased about is the very high quality and locations that those projects are in, specifically the 2 ones that you mentioned, but I think there's no shying away from the fact that the pre-leasing market for big office commitments is quite tough at the moment. And particularly for projects like CPS here in Sydney, that is an emerging precinct. So we're very long-term believers in that precinct with all the infrastructure investment there. But to get the big tech users that really need to underpin that tech and innovation precinct, you're not seeing them making those big commitments right now. So I think we're being realistic and pragmatic about. That we're still committed to working through the pre-leasing and the planning approvals there, but it's going to take longer than what we may have envisaged a year or 2 ago. As it relates to projects like 60 Collins, that's we think is probably the best development site in Melbourne CBD. There is reasonable investor interest. We're probably not chasing the big users there. We're probably chasing some smaller users and would look to start that project with a lower level of pre-commitment. But that's still working through, I guess, from a capital perspective, we want to bring a capital partner into that project from the outset. So that's one project that is 100% on balance sheet. Projects like CPS, ex balance sheet only actually has a quarter interest. So for us, having third-party capital in alongside us in these developments is very important.

And so it sounds like the tenant market is a major headwind. Is returns still back from your perspective, if you could get pre-leasing in as an example.

Sorry, I missed the second part of the question. Tenant, you're saying pre-leasing is the headwind.

Yes, is preleasing the major concern, like a return to making sense.

You'll see in the annexes to the presentation, we provide sort of rough yield on costs and obviously, investors need to take a view around where markets stabilize for very high-quality assets. And I was sort of make the point that these assets that we are developing would be amongst the best in any of the markets that we're in. So we feel certainly on the private capital side that where the -- while the bid is not deep, there is still demand for those very high-quality assets. It's just taking more time to convert those sort of partners. And we do feel that they are economic and we are looking to make profits out of our development book. It's not a loss-making enterprise for us.

My final question, just on the native CapEx incentive bucket, context in the past, you've looked to flex those items to keep the overall bucket sort of broadly unchanged. With incentives remaining at a higher level, is there any concern that there's a potential catch-up to come through on the maintenance CapEx? Or how should we think about that bucket if expenses were to remain elevated?

Caleb, it's Keir. I'll take that one. And so you'll see that overall CapEx was broadly in line this year with where we landed last year. While we have had a benefit come through from some of the assets that we've been selling in the office space, you are seeing the impact of the higher incentive cycle through the portfolio. We're also doing a greater volume of stabilized leasing and for a longer weighted average lease term. So that you are seeing the impacts of that this year.

The next question comes from James Druce with CLSA.

Just curious to hear a bit more about your divestment program for FY '24.

Ross?

James, I think as Keir spoke to, we're in a really good position to fund our existing development commitments. And so we're not -- we're really thinking about the capital recycling as a continuation of what we've been doing in the past. And so if it makes sense to trade, then we will sell assets at reasonable prices and look to invest in the amazing array of opportunities across the platform. We're not putting a target out there in terms of asset sales for the current year. We obviously achieved a significant number last year, $1.8 billion. We have a number of assets which are in the market at the moment or under detailed negotiations I wouldn't want to compromise the outcome of those processes. As it relates to how those prices are tied into our current valuations and NTA, I think for those assets which are under detailed negotiations, it's fair to say that the book values and the NTA reflects where we think those assets trade.

I think the important thing is real estate has always been cyclic and we've moved quickly and decisively in this cycle. So we don't have to sell another asset. As we said, our developments are fully funded now. And if we get the right prices, we look at the returns and we look at the returns we can get from reinvesting that capital and that's how we've always operated. But I think we've seen how challenging it is to sell assets, both by ourselves and other people in the market. And we're in a very good position right now as a result of moving quickly.

Just on the new debt that you issued over the period, how much was offshore? And how much was onshore? And can you talk to the respective margins?

So our -- of the debt that we did this year, the $2.6 billion, about $0.5 billion of that was through the exchangeable note. The balance was through bank funding. The group of banks that we deal with, it's a mix of domestic and offshore, also a mix of tenors in there. We were very mindful that margins or credit spreads were starting to widen throughout the course of the year. So we moved early on that front and we're really pleased with the rates that we've achieved on that funding.

And just the offshore credit markets, [ U.S. 144a, Europe ].

Yes, debt capital markets. I mean, as you all know, they remain challenging. I would say they are open to real estate groups, but at a price, we would typically go to those markets when we're looking for both volume and tenor. And it's not too keen to rush to those markets for either of those things at the moment. So we have a lot of headroom, which gives us time and capacity to determine when we would choose to go back to offshore capital markets.

So that offshore capital, can you estimate the margin if you were to issue today? Or is it -- if it is open to you?

It's just not open realistically at this point in time for real estate.

I think it's fair to say it's quite a premium over what you could achieve from a bank perspective at the moment.

And just the risk of -- are you seeing 123 Albert, I mean, that's been pushed out another 6 months, yield on costs. Is that one you're going to make money on?

It's going to be at the edges. I think realistically, that was a -- put in context, that was essentially a single tenant lease building to Rio, which became largely vacant and needed a major refurb. So the team are working through it. We're sort of, I think, 80% leased now including heads, detailed negotiations under the residual 20%. It should PC April next year, yield on cost is low-5s, and you'll have a view on where market pricing is for assets in Brisbane at the moment, but it's probably around that level on a good day. So it's going to be a tough project for us. But being pragmatic about it, we weren't going to sell the asset at a big discount. We think it's the right thing to do for us to roll up our sleeves and work through the releasing and reset and we'll reassess the prospects for that asset in the books once we get through the leasing.

Your next question comes from Sholto Maconochie, Jefferies.

Just following up on some of the questions. First, I'll start with leasing first. The leasing in office center very strong in the last -- in the June half, really picked up in that quarter. Was that -- where was the leasing mainly done?

Do you want to pick that up?

So 200,000 square meters of total volume over the year. So that's up 40,000 on the prior year. 35% of that volume by area or 40% by income was done with small tenants less than 1,000 square meters. So that's 250 deals. And so that's really where the activity has been the highest. Noting, of course, that the big renewals with KWM, BNP and BHP combined at just under 40,000 square meters.

And then just on the assets, I know it's being touched on. Have you still got One Margaret Street on the market?

So One Margaret Street is probably one of those assets is under detailed negotiations contract and the like. So I wouldn't want to compromise that at this stage, but that's certainly an asset that we're prepared to sell. We've got assets out in Parramatta also in a similar position. We have 100 Mount Street, which is a joint asset with our wholesale funded DWPF, which is also going through an on-market campaign at the moment. So I think we've got, I would say, irons in the fire. We're not for sellers as Keir and Darren have mentioned, but I think we're keen to keep recycling capital. There's such an amazing array of opportunities that's sort of been brought on say, brought to us, but exists through the AMP acquisition and what we're seeing in our development and trading businesses at the moment. So I think we're not short of opportunities, but we don't want to, I guess, push the balance sheet too far. So recycling capital is a core part of the strategy.

You're just sort of happy to sit on them. I mean, you got your development on funded is not critical you sell them that until sort of price discovery and liquidity improves. So you are not rush to sell those. Do you still want to sell them, but you'll wait to get a price that is palatable?

I think as we said, we don't have to sell another asset to meet any of our requirements, development or otherwise. But as Ross alluded to, we're seeing a lot of other opportunities in some of the infrastructure space as well. So we're not just limited to real estate these days. And as a result of that, if we can get good prices and we can redeploy that at higher expected returns, that's what we'll do.

I think that's the key point in my mind. It's really about the relative risk return proposition from the sales versus the deployment. And a lot of the assets that we have, particularly on the office side, they are replaceable and are going to be replaced with much higher quality assets through the development pipeline. So I think we're in a very fortunate position that some other groups aren't in that we can, I guess, pull those levers and we're not going to compromise the portfolio through these asset sales.

Just finally, on the Atlassian one, it's -- assuming you drag in a while. I think they've said that no one has to come back to work. How does that sort of play with building them a whole new tower? Can you pause that one? Do you probably have to revalue your stock if you didn't go ahead with that one?

I think that's probably more a question directed to Atlassian. We have a 15-year lease with Atlassian with very attractive fixed increases. And I know the Atlassian team are actually very excited about bringing all these people together into that workplace. And I think they've made comments in recent times, public comments around the importance of the physical work environment to the productivity and creativity of their people and their business. So I think that's -- we're excited about the project. We're excited about the precinct and we think this is going to be a great investment for us over the long term.

Your next question comes from Tom Bodor with UBS.

I just was interested in Deb's comments around sort of the relative attractiveness of Australia from a capital perspective, particularly sort of having a few headwinds there from a global perspective. Could you just elaborate on those comments, please?

Look, I think we're just very aware of the asset discounts that are playing through in other markets. And the fact that a number of our major investors here in Australia are actually global investors. So their mandates are not necessarily geographically specific and they will look to deploy where they think they're going to get the best possible risk return. So Australia as an economy, have performed very well on global standards. So therefore, we do often look expensive.

And then just another one around the funds business and growth on the infrastructure side. I'd just be interested in any comments around some of the opportunities that are coming up in the airport space and the potential for Dexus to play into that space and what you're seeing on the capital side from a demand perspective?

Look, I think what's been pleasing in the first couple of months of ownership of the AMP or Collimate business has just been that ability to do extra deals that we weren't able to get involved in before. So we've done a student accommodation deal down in ANU in Canberra. We've done a hospital deal between 2 infrastructure funds and a real estate fund. And we've done an airport deal with Melbourne Airport coming on the balance sheet and being put out to high net wealth capital. Obviously, airports is one of the places that we have deep operational experience now with the Collimate team. They were involved in the first privatization in Melbourne Airport over 20 years ago. So we're definitely looking at some of those opportunities and we have capital support to look at those opportunities. From a capital perspective, it's like you talk to anyone, any of the global investors, this is probably one of the most challenging times to raise capital anywhere around the globe in private capital. There's a lot of rebalancing going on across real estate and infrastructure. It is super challenging. Pleasingly, we've raised $1.6 billion in that time. I think if you actually take out the redemptions, that's one of the stronger performances around the globe, not just here in Australia. So hopefully, that will improve as the year goes on. I don't think it will improve quickly, but it will improve as the year goes on. And as I said, those airport transactions will take place in the second half of this financial year. And hopefully, we'll have some involvement in them.

So just a final one, just an update on the cost out and integration of Collimate as well. When do you expect to sort of see that finished?

So we settled on that transaction in late March. Pleasingly, we reached our first phase of integration milestones about a month after that. The balance of the integration is progressing really well and we expect that will be closed out during the course of FY '24. So you should see some efficiencies flow through in the first full year for FY '25.

Your next question comes from Alex Prineas with Morningstar.

On Slide 45, the presentation had outlined $5 billion of uncommitted potential development projects. Just wondering if you can sort of provide a bit more comment around general what sort of needs to happen to move those into -- needed incentive in terms of how much you're watching, maybe what rival supplier might be coming through, how far away from meeting the [ spillage ] target those projects might be? Or is it more just focused on any approval in balanced firepower.

I might take that one. Thanks for your question. It really does depend on the project in the segment. So I think in relation, I'll try and generalize, I think it's quite a broad question. In relation to industrial, it's largely a roll out of our big land banks. And so we will meet the market in terms of tenant demand and pre-leasing in each of those estates. Typically, we would look to have a combined strategy of essentially pre-leasing a building and [ staking ] a building next door, there are some efficiencies in us doing it that way. So that's really, I guess, leasing. That's probably the constraint on activating those projects. And from a Dexus perspective, our equity position in those projects is typically 25% to 50%. So we have third-party capital in most of those projects alongside us. As it relates to big office projects, the uncommitted ones, it's largely pre-leasing. And in the case of 60 Collins Street down in Melbourne, as I referred to in the previous answer, we would like to see third-party capital in alongside us, because 60 Collin Street is currently 100% on balance sheet. So third-party capital is an important part to seeing that project start. There's probably some health projects in there as well, subject to tenant pre-commitments and planning. You did ask a question around cost, I guess. Construction costs are rising. I seeing them sort of flatten out where we are. Now we don't expect them to go backwards. The cost is not a constraint. We're seeing enough rental growth pretty much across the development book. It has more than offset any cost increases over the past 12 months.

Next question is a follow-up question from James Druce with CLSA.

Just following up on Sholto's question. Has Atlassian handed back any space?

In fact, we did approach them to give us back some space because there was some other demand for it and they declined.

Your next question comes from Solomon Zhang with JPMorgan.

Just a follow-up question on Tom's question on AMP and Collimate. So I guess when you first announced the deal, your AMP was guiding for year 1 margins around 20% to 25%. Do you have an update on the margins on where they sit today and your expectations going forward?

I can take that one. So AMP's guidance around those margins was on a fully allocated basis and also included some other aspects of their platform that we haven't acquired. So it's not going to be perfectly like-for-like. But fair to say, those expectations probably still hold. As we've said, once we complete the integration, we expect that we'll be able to improve the margins in that space more akin to what you would see within the Dexus platform.

Another way of framing the question. So just on the [ $225 million ] that you spent, do you have a rough guide for stabilized cash and cash returns on that?

We don't quote a cash-on-cash return on that. We -- at the time that we announced the transaction, we disclosed an EBIT multiple of somewhere in the order of 12x and that would improve to the extent that we realize some synergies. And we are still working within that band.

But I think what we see today could be anywhere between 7x and 10x on completion.

Final question, just on the asset sales. Just noting on Slide 22, you sold a lot of assets in locations which you sort of see weaker fundamentals. Is your view that the pricing discount for assets that are located in less ideal pockets is still not sort of sufficient to compensate for the weaker fundamentals? Do you sort of continue to spend with the location and quality as the key criteria?

Absolutely. I mean we've got older buildings in the core, I'll call it super core of Sydney, for example, that are fully occupied and have no problem leasing up. So it's not just this new shiny building story. It's location, location, location. Funnily enough, that's always what they say about real estate. And just to put some things into context, 44 Market Street, there was a lot of noise about that -- about that sale. That price was virtually in line with the 2018 valuation. And guess where debt was in 2018, about 5.1%, funnily enough just about where it is today. So let's put everything in context. It's been a great write-up when money was free. And throughout most of my career, if interest rates were 5%, we'd be pretty happy with that in real estate land. So I guess what, we're back to there. It's back to where we've been for most of the last 30 years.

The next question comes from Steven Tjia with Barrenjoey.

Just want to follow up on the strategy for the real assets and how offshore investors thinking about real estate that's infrastructure?

It depends on their own makeup. I think there's different characteristics of both. I mean infrastructure tends to be a lot longer dated. You have to look at 30-year cash flows versus 10-year cash flows. Many of them have CPI links, so we have a public-private partnership fund here that sort of, for the most part, government backed with CPI-linked returns. It's delivered 10% year-in, year-out for 15 years. It's got things like hospitals, schools, convention centers. It's got Optus Oval over in Perth. It's got Reliance Rail, being in the New South Wales rail network that's here. So it's very diversified and that's a great return, but it's a 30-, 40-year type leases, so you've got to keep buying those things to keep the return going. And at the end of it, you got 0. So that's a different way, and a lot of insurance companies and like that style of product, a lot of pension funds like it because it gives you quite a guaranteed return versus a real estate where you'll get sort of 7% to 9%. Infrastructure is probably targeting 9% to 12% type returns. Ross, anything you want to add to that?

No, I think it is interesting in terms of capital formation that a lot of investors are still structurally underweight infrastructure, which presents some opportunities for us. Real estate, I guess, different organizations are at different points of their investment evolution of our in-sourcing and outsourcing. And obviously, in Australia, you have the Super Fund consolidation, which is also creating a little bit of noise and actually seeing some redemptions, not because they're overweight, but really because they're cleaning up their portfolios. And I think that is playing through a lot of the managers in the Australian market at the moment anyway.

Yes. And the merges of Super Fund...

Yes.

And just a follow-up question. I think I may have missed it before. Could you just repeat what the acquisition multiple for Collimate Capital is?

So at the time of announcing the transaction, we said it was a 12x EBIT multiple, potentially as well as 7x on realization of synergies. We're now working within that band. I'd say somewhere in the order of sort of 8x to 10x.

Your next question comes from Winston Sammut with Euree Asset Management.

Winston, just maybe speak again. It came through very muffled.

I have 2 questions. First question relates to the $2 billion of redemptions that you've met.

Winston, can you dial back in. It's just not coming through very clearly.

The question about what is the right price for selling assets. There is a right price, there's a valuation, there's a market price. If we look at the indication on the [indiscernible] are you sort of suggesting that you should be looking at your right price being valuations back in 2018?

I think I'm saying it depends on the asset. It depends on your other uses for the capital. So as we know, valuations are not an exact science. We've sold assets in the past year. I think one of the assets we sold was -- what 6% premium to the valuation? 7% premium. So we sold assets at discounts to val. We sold assets at premiums to val. What we look at is the returns from that price on a go-forward basis. Our job is to try and get the best returns we can get for our shareholders. So we're not slaves to valuation prices, we're slaves to return.

On the redemption side?

Deb alluded to, we've got redemptions throughout our portfolio like most fund managers have across the globe. I think pleasingly, unlike many other managers, we've sold about $4.6 billion of assets in our funds business over the last few years. And that has helped us satisfy a lot of redemptions. We also have a lot of rolling redemptions in our funds, not necessarily fixed windows inside them. So the team is used to managing it. We've got some to work through now. I think it's under 5% of our portfolio, Deb. Does that sound about right?

Yes, that's right, Darren. And all those funds have plans, which are in hand and their investors are aware of what they are. So we feel really confident that we can meet that. I think it's worth bearing in mind when we talk about redemptions across Dexus, we are talking about some retail funds as well as institutional pooled funds. So the type of redemption is quite different depending on the type of product.

But you sort of look back over the last couple of years and so we've raised [indiscernible]. It's totally different to the environment. You were selling assets in a rising market. Now it's a different situation. It's not a rising market. And so it's a...

So sorry, I really can't understand the question. It's just a muffled line Winston.

Just repeat that again, Winston.

What I'm saying is that it's all very well to say over the last couple of years or [indiscernible] you make redemptions from sales, [ $4 point whatever it is billion -- million]. Here we are, this is a totally different market. What happened in the past doesn't apply now.

But I think the point is we weren't selling in the past couple of years just to meet redemptions. We were selling because we thought it was the right thing to do at an asset level and for the fund. As a result, the funds weren't over-levered like some we're seeing with many of our peers right now. So that's why our funds are in a great position to ride through this cycle. Real estate always works in cycle. I think we are the group that has sold the most assets across the platforms over the last 3 years.

And further to Darren's point, if you take Winston, for example, DWPF, DWPF has had ongoing redemptions on a year-on-year basis, which have fluctuated up to $1 billion at certain times. And at other times in the market that has been able to be met actually through new capital. We have been able to make that through using different mechanisms. So the mechanisms that are available to us today are what the market delivers for us. And those capital plans are broadly discussed with investors as most investors are not actually taking their full position out of any fund at any one time. So they remain ongoing investors as well.

And I think just bringing back to sort of the market context, and I think Winston, there's something, I guess, implied in your question around that the market outlook for transaction is going to be tougher than where we've been. I've been out there at the [ cold phase ]. It has not been an easy market the last 4 years. I think trying to transact assets through COVID has been very difficult. And I think the pleasing thing is that the Australian market has remained open. It's remained liquid across all the real estate sectors. The same cannot be said about a number of the other developed markets. And maybe we're not getting the prices that we would like to get in a good market, but we're still what we believe is creating value for our clients and for ourselves and how we think about that capital recycling and the redeployment, whether clients want to redeploy that elsewhere, it's our duty in that respect to execute the same.

And in fact, selling [indiscernible] just outside of COVID was one of the toughest transactions we made. In hindsight, it was a great transaction for that fund.

Thank you. We have come to end of our Q&A session. I will now hand back to Mr. Steinberg for closing remarks.

Okay. Thanks, everyone, for joining us today. I know it's a busy day for many of you. I look forward to catching up over the coming weeks to discuss the result in further detail. Have a good day.