Dexus Earnings: Office Market Remains Soft but Likely Near Inflection Point

Narrow-moat Dexus' fiscal 2024 adjusted funds from operations excluding trading profits was broadly in line with last year at AUD 506 million. Total distributions per security of AUD 0.48 was consistent with guidance and our forecast, down 7% year on year. FFO from office and industrial properties dropped 7% and 14%, respectively. The declines were mostly offset by higher FFO from co-investments in pooled funds and funds management operations, both driven by the AMP Capital platform acquisition. Driven by higher debt costs, management guides to AFFO of AUD 0.445-AUD 0.455, down 6% on fiscal 2024. Fiscal 2024 distribution guidance is AUD 0.37, 23% lower than fiscal 2024 and representing a payout ratio of roughly 82% of AFFO, in line with the new target payout ratio of 80%-100% compared with 100% previously. Guidance is lower than we expected, and along with the lower payout ratio is probably why shares fell 9% on Aug. 20.