DEXUS (DXS) Earnings Call Transcript

Okay. Good afternoon. I'm Warwick Negus, Chair of the Board of Dexus Funds Management Limited. On behalf of the DEXUS Board, welcome to our AGM. And it's good to see some of you back here in person again. Before we start the meeting, I would ask our audience in the room to ensure your mobile phones are switched off or on silent. In the event of an emergency, the fire exits are located along the corridor outside this main room. It is also where you will find restrooms. I would like to acknowledge the traditional custodians of the land on which we are presenting from today, and I pay our respects to their elders past and present. I would also like to extend that respect to and welcome any First Nations people who are joining our meeting today in person or online. We appreciate that not all security holders can attend in person and have provided the opportunity for everyone to participate in the meeting through our hybrid meeting format. Our online platform provides a live video feed so that those dialing in can view the meeting in real time, submit questions and vote while the meeting is underway. A conference call facility is also available to enable securityholders to ask questions in the meeting. For securityholders online, you can access your voting card to vote on the resolutions for the meeting by selecting get a voting card, it's a pretty obvious, button at the top of your screen. You will need to first register here, and you'll be able to submit your vote at any time during the meeting. You'll need your security holder number and post code to register your vote. If you're a proxy holder, please enter the proxy number issued to you by MUFG Corporate Markets in the proxy detail section and then click the submit details and vote button, also self-explanatory. Online voting will close 5 minutes after the close of the meeting, and the results will be released to the ASX later today. If you have any questions to put to the meeting 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 the general business or a specific resolution. These will be addressed at the appropriate time during the meeting. For our security holders joining us today in the room, please raise your admission card during the question time if you have a question. We'll take questions from the floor, then ask questions or comments on the web phone facility, followed by questions and comments submitted via the online platform. We'll endeavor to respond to all questions and comments during the AGM. This is your time to ask questions. And for any questions that we do not have time to address will ensure we get back to those investors and shareholders separately. Today, I am joined by our independent directors, Varya Davidson, mark Ford, Jon Gidney, Peeyush Gupta, Rhoda Harrington, Elana Rubin; and DEXUS' Group CEO and Managing Director, Ross Du Vernet. It's a pleasure to have them here today. We'll hear from Varya and Jonathan on their election later in the meeting. I will commence the meeting with my address, which will provide you with an overview of our positioning and key aspects of our '26 results. I'll then hand over to Ross, who will discuss our quarterly update and strategic priorities, which were also released to the market this afternoon. We'll then turn to the formal aspects relating to the resolutions, which were outlined in the 2026 Notice of Meeting and explanatory memorandum sent out on the 24th of September. I will now table my appointment as Chair of today's meeting and formally open the meeting. Accordingly, I call for a poll on all resolutions to be put to the meeting and declare the polls are now open so that you can now start to lodge your votes. Today, our $15 billion balance sheet portfolio is largely invested in high-quality offers and industrial real estate alongside third-party clients. We've been transitioning our balance sheet portfolio, improving its quality, becoming more capital efficient and building a more diversified business with a clear ambition to create a more resilient business that can generate sustainable earnings growth over time. We have a funds management business of scale and significant relationships with clients, but there is work to do, to ensure the strategies and products continue to be relevant and deliver for clients and for us. Over the past few years, DEXUS has been making a deliberate transition to become more capital efficient and diversified. Ross will talk more to the benefits of this later. Today, we have a high-quality investment portfolio. We also have a funds management business of scale and significant relationships with clients. And we will be disciplined about continuing to actively manage our products to ensure fund strategies generate appropriate returns for clients. For '26, FY '26 results show we've delivered what we said we would and continue to make progress on our transition, noting we have further to go. Specific issues have emerged on the infrastructure funds and mandates that transition to Dexus from AMP, and we're addressing these directly. Our portfolio and deep relationships have created a privileged position when it comes to opportunities and deal flow. And we will be disciplined in choosing opportunities for us to deploy capital alongside third-party clients. The security price materially understates the value of the underlying investments and value in the platform. The Board acknowledges this disconnect, and we're working with management on improving it, both in the near term and sustainably over time. In FY '26, we delivered solid outcomes in our core business, despite navigating some challenges in infrastructure. We delivered on divestment targets, secured attractive capital growth opportunities, substantially resolved redemptions across the core real estate portfolio, platform and raised capital from clients twice as much as last year. In our investment portfolio, we improved occupancy, income and returns from assets we already own. We continue to focus on meeting the needs of our fund clients, delivering performance in those strategies and ensuring we bring new opportunities that create long-term value. We're also laying the foundations for long-term growth with initiatives like the joint venture announced with Boral, a more than decade-long project, which has the potential to create the nation's largest logistics precinct and investments in businesses like ADC, an exclusively, Australian-focused data center business that is part of a -- of the first consortium to secure a large contract with global AI leader, Anthropic. And we're being responsible in how we think about costs and overheads to run the business. Despite a subdued transaction market, we've taken an active approach to capital recycling to enhance the quality of the portfolio and strengthen our balance sheet over the last 7 years. More recently, we committed to $2 billion of assets being divested over 3 years to FY '27. Pleasingly, we have exceeded our target ahead of time, completing $2.5 billion of divestments. These actions, along with the completion of committed developments will further enhance the quality of our portfolio while maintaining a prudent level of gearing. Our office portfolio is 95% prime grade and 78% weighted to core CBD markets. Our industrial portfolio is 89% weighted to core industrial estates and distribution centers. The quality of the portfolio is evident in stabilizing the valuations during the year with the total portfolio valuation increasing by 1% despite the interest rate environment. We've been considered and decisive in responding to the APAC matter. Our priority is to act in the best interest of our clients and to provide stakeholders and with confidence in our business as we move forward. To provide background to this matter, the Dexus Bloc is a group of interest in APAC, the company that owns Melbourne and Launceston Airports. Dexus became the manager of the Dexus Bloc through the 2023 AMP Capital transaction. As manager, Dexus acts in a fiduciary capacity for those investors. In May this year, the New South Wales Supreme Court handed down a judgment against the Dexus Bloc in proceedings relating to a sale process. The Dexus Bloc investors have now appealed the judgment with a court date set for November 30. This means the final outcome for the Dexus Bloc holding in APAC and the potential ultimate impact of this matter on Dexus remains uncertain at this time. The judgment made a number of adverse findings regarding conduct. While we sought to act in the best interest of our clients throughout the process, it is clear that this situation does not meet the standards we set for ourselves and that of our stakeholders rightly expect of us. We recognize the disruption and uncertainty this matter has caused for our clients and security holders. The Board and management have considered the judgment carefully and have taken direct action, including standing down relevant employees and making remuneration adjustments where appropriate. Further, additional mandatory training has been completed by relevant employees and more governance KPIs have been introduced for all employees. We are implementing a range of initiatives as part of our ongoing programs to strengthen governance, risk management and organizational controls. Current areas of focus include culture and accountability, information governance, compliance and control frameworks and escalation arrangements. We've also updated the reporting line of our Chief Risk Officer directly to the CEO with a functional line to our Board Risk Committee. This change reflects the important role that the risk and compliance plays in supporting Dexus' strategy, governance and long-term success. It also further strengthens the independence and the influence of the function across our organization. In June '26, we also commenced a strategic review of the infrastructure funds and mandates. The review reflects our commitment to address issues that have emerged and determine a path forward for investors. Further detail on the APAC matter and our response can be found throughout the annual report, and Ross will provide an update on the infrastructure review shortly. Before we move to the formal items of business, I want to update security holders on a matter that has had ongoing attention of the Board. As many of you know, allegations across this year regarding KPMG's conduct. These matters have been examined through regulatory investigations and by Parliamentary Joint Committee on Corporations and Financial Services. KPMG was appointed by securityholders at the 2024 Annual General Meeting and signed our accounts for the year ended 30th June '25. As more information emerge regarding the allegations, we onboarded a new KPMG lead partner and engagement partner during the year ended 30 June '26. The Board has also sought and received additional safeguards from KPMG as a result -- and as a result, KPMG has agreed to implement specific controls over DEXUS' confidential information. The Board has considered the disruption that would be caused by further changes in audit firms and audit partners in a short period of time. As we stand here today, KPMG remain our external auditor, and we'll continue to maintain a watching brief. We're disappointed by the way this issue has evolved, and we recognize this has caused concerns amongst our shareholders. In this regard, I thank you for your patience. In summary, FY '26 was a year with both challenges and evidence of real progress. We invest for the long term and despite market and more recent challenges, we have a solid plan and a team in place to execute. While the core portfolio is expected to benefit from leasing momentum, earnings in FY '27 will be lower. This is driven by a minimal contribution from performance fees and trading profits, higher financing costs and the practical completion of Atlassian building in Sydney. We've also made some allowances for a materially lower earnings contribution from funds under review and consultation. As a result, and barring unforeseen circumstances for the 12 months ended 30th of June '27, wewe expect AFFO, adjusted funds from operations of between $0.375 and $0.395 per security and distributions of $0.37 per security. The Board and management acknowledge that our securities are trading at a material discount to net asset backing. At our half year results in February, we announced an on-market securities buyback with meaningful progress linked to divestments and the release of capital from major transactions. The interest rate rises and geopolitical uncertainty that followed have impacted transaction and investment markets and have slowed the pace of execution. We continue to view the buyback as a lever to create value for securityholders over the medium term, and we remain resolved to execute in a disciplined manner as we pursue both divestments and attractive investment opportunities while maintaining prudent gearing levels. We have solid foundations with the differentiated funds platform, strong client relationships and a diverse product offering. Our investment portfolio is high quality and positioned to benefit as liquidity returns to the office market. Before passing to Ross, I would also like to thank my fellow directors and the Dexus team for their commitment and contribution over the past 12 months; and to you, our investors, for your continued support.

Thank you, Warwick, and good afternoon, everyone. Nice to see some familiar faces in the room. 12 months ago, we set out the priorities and actions to reshape the business to deliver more sustainable earnings growth over the longer term. The macro environment during FY '26 was challenging, with 3 rate rises and the Middle East conflict impacting capital raising conditions and transaction markets. Notwithstanding this, we made solid progress. We raised almost twice as much third-party capital in FY '26 as we raised in '25. This included our opportunistic fund, DREP2, which exceeded its original target by more than $300 million. The establishment of a new product, DSIT1, to acquire an interest in termite shopping center in Brisbane and resolving the redemptions in our flagship fund, DWPF. . We also exceeded the quantum and timing of our divestment target, as Warwick has mentioned. Our major projects are also progressing well. Atlassian Central here in Sydney has topped out and is on track to complete later this year. Our other major project, Waterfront in Brisbane, has experienced delays but remains favorably positioned in the country's strongest workplace market, and the project remains profitable, and the yield on cost is expected to remain within the 5% to 6% range. We also actively are addressing fund-specific issues. This includes responding directly to the APAC matter, continuing to support our fund investors and ensure that we're embedding learnings into the wider business. Turning to the September quarterly update. Well, despite challenging operating environments, we continue to see positive momentum across the platform in the September quarter. On the balance sheet, rent collections across our office and industrial portfolios remained strong at 99.5%. The office portfolio occupancy reduced slightly to 94.2% but remains well above market average of 85.1%. Average incentives of 23.8% are also down, reflecting lower incentive deals done in Sydney's prime core market and a higher proportion of effective deals done during the period. Positively, the office market conditions continue to improve with positive net absorption recorded in 3 of the 4 major CBDs and the demand remaining concentrated in high-quality, well-located assets. The industrial performance also remained strong with over 113,000 square meters of leasing, occupancy of 94% and re-leasing spreads of around 36%. The portfolio remains under rented by about 8.1%, and this supports future income growth on upcoming lease expiries. In the funds business, the September quarter saw continued strong investment performance in the flagship funds of Dexus Wholesale Property Fund, DWPF, and the Shopping Center Fund, DWSCF. We raised circa $230 million of capital from both domestic and offshore investors, and this included more than $160 million of secondary unit transactions. As we communicated at the Dexus FY '26 results, following an increase in the redemption queue, Dexus in conjunction with the responsible entity of the Healthcare Fund, DHPF, undertook a structured engagement process to understand investor objectives going forward. The responsible entity has now engaged an independent adviser and is reviewing a full range of options for the fund. And this includes asset sales, alternative capital and ownership structures or a wind up. DHPF's third-party FUM is about $1.1 billion, and Dexus has about $180 million co-investment in that fund. During the quarter, we also saw some important news for ADC. It's a small Australian data center-focused business that Dexus owns a controlling interest in. ADC, as Warwick mentioned, is part of a consortium that has recently entered into a lease with an Australian subsidiary of Anthropic for the delivery of the first stage of a proposed hyperscale data center campus in the Western Down regions of Queensland. While it's subject to further approvals, this is a really exciting opportunity. ADC has launched a fundraising process to introduce additional capital into that business, but Dexus is yet to determine the extent to which it will participate. Further details will be provided at the financial close of the Anthropic project. Turning to the developments. Well, our 2 city-shaping developments that will further enhance the portfolio quality are well underway, and you can see that in some of the images on this slide. Atlassian Central, which is 100% pre-leased for 15 years, is on schedule for practical completion later this year. As announced at the full year result, the completion of Waterfront Brisbane has been delayed with the expected completion of late 2029 based on the contractor's current program. Dexus' share of total costs are expected to increase, and this is primarily due to interest costs and leasing incentives associated with the delay. We remain confident in this project. It's 71% leased with rents around 50% below current market levels in the country's strongest office market, and the project remains profitable with the yield on cost materially in line and known valuation impacts are reflected in the carrying values and NTA. In the industrial portfolio, construction continues at 7 projects across nearly 71,000 square meters at Jandercoct Airport, and that includes 2 newly committed projects started during the quarter, both of which are 100% leased. Turning to the priority areas for the year ahead. We have a clear strategy, and we're very focused on our execution. Our objectives of transitioning the balance sheet, expanding capital partnerships and enhancing platform efficiency will guide what we do. As we execute these near-term priorities, we are also ensuring that the business is positioned with options for longer-term growth. Our logistics partnership with Boral and the seed investment in the Australian-focused data center business, ADC, are both good examples. That's also why we're investing in our people. People are an important part of our business. The connection with customers, clients, partners and the decisions to create value and manage risk all relies on people. We have a great team of passionate experts who thrive in creating and driving value from assets, and we continue to invest in them. This year, there's been a particular focus on upskilling our people to help them navigate change in challenging markets. And I would like to acknowledge the contribution of our people who have worked tirelessly this year, sometimes in some challenging circumstances. I would also like to acknowledge our CFO, Keir Barnes, who's here with us today, who will be leaving us at the end of the year to pursue an opportunity outside of real estate. I've known Keir for many years and worked with her closely for the past 7. She's been a great partner and a tremendous contribution to Dexus, and we wish you all the best the next chapter in your career, Keir. Our plan is really designed to close the valuation gap between the security price and the intrinsic value in the business. Transitioning the balance sheet is a key driver and focus area. We have a high-quality portfolio of assets. However, the operating environment has impacted the return equation for real estate. Capital is more scarce, and it's more expensive. We need to make our balance sheet investments work harder, and we want our investment portfolio to be more resilient. That is why we are transitioning our balance sheet. We will continue to hold high-quality investments, but we are transitioning to hold these investments alongside fee-paying third-party capital. This improves the economics of our ownership and releases capital, which can be used to repay debt, invest in high-returning opportunities or buy back our own securities. As a management team and Board, we have rigorously explored a range of options to unlock value in the business. This includes exploring alternative structures for our balance sheet assets and our funds management business. We expect to introduce third-party capital on both an asset and a portfolio basis. Atlassian is a good example of an asset where we will look to introduce third-party capital alongside us. We have existing JVs where we will also look to introduce additional third-party capital, and we are also exploring opportunities to bring institutional investors into portfolios of high-quality office assets, which we own on balance sheet. All of these activities, along with ordinary cross asset sales, could release considerable amounts of capital over time. This transition has the potential to create meaningful value, but the execution is important. What we sell, the price we sell, what we invest in, the generation of funds relationships and the potential change in our asset and business mix. We will continue to test and reassess, will be measured and pragmatic in how we execute to deliver the best outcome for securityholders. Today, we have provided an update on the strategic review of the infrastructure funds, which was announced in June. This review has confirmed that clients across a number of funds are seeking liquidity, and Dexus will work closely with the responsible entity boards and the infrastructure clients to determine the appropriate way forward for each fund and mandate. Macquarie Capital was engaged to support the review, which included an independent assessment of each fund in conjunction with the responsible entity boards and infrastructure clients. Specifically, the focus during FY '27 for the Dexus Diversified Infrastructure Trust, or DDIT, and the Dexus Core Infrastructure Fund, DCIF, will be to progress asset sales to provide liquidity for clients. For the other infrastructure funds, consultation regarding the best pathway to provide liquidity remains ongoing. For the funds and mandates with stakes in APAC, the path forward will depend in part on the outcome of the appeal, which is due to be heard in the 30th of November this year. The infrastructure review has given us a clear basis to simplify the platform and focus our capital and capability where Dexus can deliver the strongest long-term outcomes. As a result, Dexus is refocusing the business on the real estate markets of office, industrial and retail, plus a targeted alternatives platform. The alternatives platform will be focused on the emerging real asset sectors that, one, leverage the core capabilities of the Dexus platform; two, drive a substantial portion of income from real estate like activities; and three, provide material growth potential. From an infrastructure perspective, activity will, therefore, be focused on areas which are predominantly enabled by physical real estate or real estate-related activities. The alternatives team is currently focused on data centers and selected living subsectors as well as multisector opportunities, for example, health care precincts. We'll also continue to deliver on existing fund commitments across health care, public private partnerships and transport. I'd like to conclude by thanking you for your ongoing support. I know this has been a difficult year. And while there have been some challenges, there have been bright spots, too. The most pleasing for me is the way the team have rallied around the challenges remain focused operationally and delivered strong results while continuing to successfully pursue and secure opportunities that will provide long-term growth for the business. I'll now hand you back to Warwick to work through the formalities. Thank you.

Thanks, Ross. I'd like to pause here and ask if anyone has a question they'd like to ask regarding what we've touched on so far before going into the formal part of the meeting. First, we did receive some questions and comments through our registry prior to the meeting, and I will just address a couple right now. The first was from a shareholder, [ Teresa Sakuto ] and her question was why so much money for performance. We all work hard, but the average person does not get performance rights, although they may outshine. Thank you for your question. In '25, the Board undertook a review of executive remuneration framework with the assistance of an external independent adviser to best support our strategy and remuneration principles. We adopted a back-to-basics approach and used the following criteria to develop a remuneration framework, simple and sustainable, credible internally and externally, the ability to attract and retain key talent and provides incentives that are variable and aligned to the security holder experience. Where outcomes feel misaligned with the security holder experience, the Board has the opportunity to exercise discretion and has done so both last year and this year. All proxy advisers and major security holders have supported the remuneration report in both years. And in response to [ Teresa's ] specific question about performance rights, they are only of value if the company has delivered to the outcomes specified. The second question I have is from [ Timothy Clifton ]. At present, Dexus does not have a dividend reinvestment plan. Does Dexus plan to introduce a dividend plan in the near or distant future? In what areas does Dexus plan to expand its investment portfolio outside of Australia and New Zealand? Okay. So there's 2 questions there. We have no plans at this stage to open a dividend investment plan, particularly given where the security price is trading. If we decide to open a DRP in the future, we would contact all secure holders to inform them and provide with the option to participate. Dexus is also not currently planning to expand its investment portfolio outside of Australia or New Zealand. I think that would be going in the opposite direction of the strategy that Ross talked to. Our focus remains on recycling capital, being more capital efficient and selectively investing in higher returning opportunities and capital partnerships. So I'll pause there and open for questions. Please, there's a microphone coming for you.

I've listened very closely, and I'd like you to give us more of a real-world understanding of the last points that you were making, Ross, about health care and subsets of, I think, it was housing. So if you could give us a feel for what you're talking about.

Thanks for your question. First of all, I put in context the alternatives part of our business is quite small. So this is areas where we think there might be attractive returns, and we think we can scale opportunities. But I'll just contextualize for you. It's a very small part of the business today. The sorts of things that the team are currently focused on are things like student accommodation. So part of the AMP Capital business acquired had a large on-campus student accommodation business. That is an area that does play to the skill sets in terms of development and product creation. So it's those sorts of things, data centers in the living space, in our opportunistic fund DREP, which is again serviced by our alternatives team. They are looking at everything from residential development being a partner, so not a developer, but financing these type of projects. So that's sitting largely within our opportunistic fund series. But I don't expect that these subsectors are going to make a meaningful contribution to our earnings or our investment portfolio over the next couple of years. But the way I'm certainly thinking about it is what are the seeds we're putting in the ground today to ensure we've got growth opportunities 5 or 10 years from now. And that's what that team is focused on.

Does that answer your question? Okay. Other questions? Go ahead, David.

Yes. Look, last year, I provided a lengthy diagnosis, but I don't propose to repeat that today, you'd be pleased. But just a few quick comments and then a couple of questions. Sadly, in the past year, the Dexus stock price has fallen heavily from $7.60 to around $5.60 current price today. It's over a $2 billion fall in the last year in the market value. I do accept that interest rates have risen. And congratulations, you raised last year, excessive office exposure. You've sold a couple of billion dollars of offices, so well done on that. But the reality is today's price is a very heavy 37% discount to claimed NDA of $8.90, around about $8. 90. But that discount is actually even worse. If you take into account substantial value of the very large funds management platform you have, whereas your intangibles in the balance sheet are only about, from memory, $450-odd million, some of those are software and other things. So clearly, the intangible value of your funds platform is dramatically higher than that. And accordingly, the discount you're being rated at, including funds management platform is well under the 40% level, which is huge. So clearly, the market is very skeptical of, number one, the stated NTA. But number two, it has concerns about contingencies. So I've only had 2 questions today on this item. But firstly, I mentioned last year, I think you are losing money on developments. Ross said today that Brisbane, you're still going to make 5% to 6%. I think if you fully factored in management time and a whole lot of other things, you'd be losing money on that, Ross, without any doubt. But I think the market generally, Chair, thinks you're going to lose $200 million to $300 million on the Atlassian project. Are you looking to take a provision on that? And the second part of that first question is I totally understand the vagaries of court cases, understand the APAC decision is on appeal. But given the current decision is against Dexus, did you consider taking a provision on the legal exposures? You've already been -- had major costs awarded against you. You've then got your own costs, which I think will amount to both of those categories over $60 million. But I appreciate you may well have insurance, Chair. Insurance is always a bit of a gray area. And you may well have a third-party claim. There was a lot of press about your adviser and you may well have a third-party indemnity claim. But given the potential damages are in the many hundreds of millions of dollars, did you consider taking a provision for that? Because clearly, those issues are reasons -- part of the reason why the market, which is not always right, but is pricing you at -- including the funds management platform, a discount of well under the 40% level, which is huge for a company of this history, scale and it indicates clearly that they don't believe you're NTA, and they think that you are not taking into account contingencies. But that's my first question, Chair.

Okay. Thanks, David. I'll handle the APAC question and then maybe Ross can talk to developments. Your question around APAC is really did we consider making a provision of a potential third-party claim. And we did provide for legal costs at the start of this, we undertook to support the costs of our clients. And it's our clients who are pursuing the legal action, and it's our clients who are pursuing the appeal as well. We know what the costs are, and we've been expensing those as we've gone along. I think there would be far too many uncertainties to come up with some sort of number that would approximate some sort of claim. I'm not sure that the claim that you think might be there is actually there. But because of the level of uncertainty either way, it just didn't feel like the right thing to do to make a provision. On the announcement of the original judgment, the stock did trade down, and so there is a lack of information there. And it's -- maybe it's a little bit frustrating at times for us that we can't share all of the intricacies of what is actually going on. But as far as taking a provision against some sort of future claim, no, we have not done that. And we considered it, and we just felt that there were so many uncertainties that it just wouldn't make sense. I'll pass to Ross on developments.

Thanks for the question. I think we would whole heartily agree being disciplined around capital allocation is so important to value creation for investors long term, and developments are a key area of focus. And certainly, the 2 that you highlight have caused some issues for the portfolio. I'll just make a couple of observations. One, this is not unusual for office developments, they are long dated. And you need to think about it through cycle, and there was a similar commentary. You may recall when Dexus, prior to my joining the company, was developing 1 Blige Street. So I think at points in time, it is going to be hard. We got to remember that we're developing these assets for the long term. The other point I would make is we haven't committed to large office projects in recent times. And so while we did have a great development pipeline, 60 Collins Street in Melbourne, Piton bridge here in Sydney, I think you are seeing in our actions as the current management team, having applied a very disciplined capital allocation model that we aren't committing those projects today. We're very mindful around the risk and the returns that we need as we deploy shareholder capital. So I think shareholders would understand you can't stop a project halfway through, particularly these large projects once they are commenced. You really need to see them through. You're going to -- you are committed to a degree. So we are absolutely committed on those projects. Atlassian and Waterfront are both independently valued. The point I did try to make in my presentation is while the yield on cost for Waterfront is in that 5% to 6% range, the building currently is going to be at currently -- rents down are going to be 50% below the current market. So that is on a market room base. So actually, we feel pretty good about owning premium leasing risk, and that asset in Brisbane with all the setup fleets, the strongest office market in the country, I think we're going to be okay. There have been delays. Atlassian is a different kettle of fish. It is a long lease. We have been hurt on that. We have taken significant write-downs already that is already factored into our current NTA. I can't sit here and say that there's no further write-downs. But what I can say is our assets independently valued third-party appraisal, and we are running a process to try and bring some third-party capital in there over the next few months. So we will see exactly where the market's at on that asset.

Okay. My second question, and I only have 2 on the opening item. But with -- in my assessment on the basis I've mentioned in my view, you are trading at probably mid-40s discount to true NTA if you include a value for the management platform. That's huge. Have you received any approaches from third parties about mergers or takeovers? And if not -- because the press has alluded to that periodically. And if not, as a mechanism to restore shareholder value, should Dexus take the initiative and seek a merger or some combination that will crystallize at least part of the huge discount? You yourself, Chair, and you're a very measured guy, and I respect your opinion. I have stated very clearly that the market is undervaluing the assets. I respect what you're doing. You've stopped development, which any rational REIT would stop office development at the moment. I respect what you're doing in a number of areas. You're closing a few funds that are failing. So there's progress there and well done for selling some offices. But probably the way to restore value quickest is some corporate activity at the global level, the top co level. Have you received any approaches preliminary all there be? Or -- and should you initiate some of those discussions?

Thanks, David. It wouldn't surprise you that all the investment banks have called offering to help in the event that we are contacted. But -- and it wouldn't be appropriate for me to discuss at a meeting like this whether we've been approached or not. We're really conscious of what the difference is and Ross devoted part of his speech to how we close the gap over time. The NTA is there. It's public number, so there's no secret what the underlying value of this company is. Whether we should make outgoing calls. I think at the moment, our focus is solely on executing the strategy.

And I respect that, albeit similar comments were made last year. And there were realistic comments and fair comments. You're always fair and balanced. However, another year has gone by with some good things done, and I accept interest rates have gone up. Most REITs are down a bit. But there's $2 billion of eroded value according to the market anyway. Share price is quite often misleading, but with $2 billion lower today than this time last year. So it comes at a point where momentum is an issue. I think it's an issue for this company. A couple of good people are departing, Keir, a capable person. Sad to see her go. But at some point in time, maybe not today, Chair, but at some point in time, maybe you should make some outgoing calls because it is one way to crystallize value gap.

Thanks, David. In the last year, the REIT index is up to last -- the end of last night is down 22%. So the decline is -- and we're down 19.5. So we're down roughly in line with the REIT index. It's with the rising rates, with global conflict and the risk end markets, I think there are a lot of reasons why the listed real estate sector has had a troubled year. But I take your point. Thank you. Other questions? Row, do we have any online?

Chair, we have a question online from Stephen Mayne. KPMG issue is complex. Could the Chair of the Audit Committee briefly explain where Dexus fits in the scandal, how the audit committee responded and whether it was the crime or the cover up that caused the most amount of concern? Could the new KPMG audit signing partner also comment on how the handover was handled with the previous partner who signed the '24 to '25 accounts? Were we given a choice of new partners as normally happens with partner rotation? Did the partners present to the full Board or just the Audit Committee?

I think I can probably take most of that question myself, Row. Thank you, and welcome back, Stephen. So I think where did Dexus fit in, Dexus has moved very early into this process and made a change to the signing partner, as I said in my opening remarks. And we -- it's not easy to bring a new signing partner into a relationship like this in June, if you're a 30 June year-end, but the replacement signing partner and the engagement partner did a really good job in getting to the bottom of our accounts in a very short period of time. And they signed off on the accounts in what was, for us, was a relatively smooth process. In going through the process of asking for a new signing partner, we did have choice. It was a good process. KPMG responded quite quickly for an organization that was under a bit of pressure. And we discussed that as a Board. And so it wasn't simply confined to the Audit Committee, and senior management was also very much involved in that replacement decision. So as I said in my remarks, for the moment, we are not intending to make another decision about our audit -- external auditor, our relationship with KPMG, but it is on a watching brief. I think that probably answers most of the questions from Stephen.

There are no further questions online.

Okay. Well, I'm going to start going through the formal parts of the meeting. And as I said previously, there's an opportunity for anyone to ask questions on each of the items. 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, MUFG, that a quorum is present to enable the formal resolutions, the subject of this meeting to be considered in past. I'd also like to table the 26th annual report, which includes the directors' report, financial report and independent auditor's report for the financial year ended 30 June. 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 intend to vote undirected proxies in favor of resolutions 1 to 3. The way we'll run the meeting is that we'll go to a poll on resolutions 1 to 3 and look at each of these resolutions and the proxies received individually, at which time, you'll have the opportunity to ask questions or make comments about each of these resolutions. Accordingly, I formally call for a poll on resolutions being put to the meeting and declare that the polls are open. You can vote on these resolutions and for the attendees at Dexus Place, you can hand your yellow voting card to the representatives from MUFG, who will collect them at the conclusion of this part of the meeting. For security holders joining us on our online meeting platform, you can access your voting card and complete your voting as we proceed through the resolutions. You should have received the Notice of Meeting, which sets out the resolutions and accompanying explanatory memorandum, which provides security holders with information to assess the merits of the resolutions. Let's 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 2026. Under the Corporations Act, a listed company is required at its AGM to put to its security holders a resolution 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's a listed stapled group comprising real estate investment trusts. The vote on resolution 1 is advisory only and does not bind the directors or Dexus Funds Management Limited. The Board is acutely aware of the impact of the APAC matter on our security holders. As a result, the APAC matter has had a material impact on executive remuneration outcomes. And this has been outlined in detail in the remuneration report. The proxies received are detailed on the screen and represent about 77% of issued capital. Let me now turn to the questions in relation to resolution 1. Are there any questions or comments in relation to this resolution? Go ahead, David.

Just really seeking some clarification, Chair. Chief Executive's total remuneration in FY '25 was $3.0 million, which I'm fine with for a $6 billion company. I was at an AGM today for an education company and $600 million and the woman was getting $4 million. So $3 million on this size company I'm fine with if the performance is there. But just a clarification, Chair, in FY '26, Chief Executive's remuneration was a total of $1.8 million, which seems to arise from -- did you cancel $435,000 of STI because there's -- in the rem report, it actually has square brackets -- brackets around $435,000, is a deduction of the total earned.

So in 2 there was a combination of the fixed remuneration plus the value of the long-term incentives, which were given to the Chief Executive in that year. The STI was assessed at 0 for that year. The value of the long-term incentives, we won't know what that number is, but that was the fair value. In '26, the incentive, the short-term remuneration was decreased. We exercise judgment as a Remuneration Committee and as a Board to decrease that by 70%.

But in the rem report, it actually has minus $435,000. Did you take that away from Ross?

Minus $435,000. Approximately. Yes.

So that just came off his total rem. Okay, fine.

It did. That was as a result of discretion exercise mostly related to the APAC matter. Look, I should say, but whilst Ross wasn't directly responsible, the accountability sits with the Chief Executive. Are there other questions on the remuneration report? Any questions from online, Row?

Chair, there are no questions online in relation to this resolution.

Okay. I'll now turn then to resolution 2. Resolution 2 is an ordinary resolution and relates to the grant of FY '27 long-term incentive performance rights to the group Chief Executive. We're not required to seek security holder approval for the grant of performance rights as we buy the Dexus securities that are 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 details of the FY '26 grant of 406,504 performance rights are detailed on the screen. At the time of providing the 26th Notice of General -- Annual General Meeting, the FY '27 LTI performance rights details were not available due to the extended allocation timing to the 25-day period post the release of the results. Following the completion of 25 trading day period, we announced that the value attributed to a performance right to be allocated to the CEO under the FY '27 LTI has been determined at $5.69, and the proposed grant under the FY '27 LTI will be 527,240 performance rights. The proxies received are detailed on the screen and represent, again, 77% of issued capital. Are there any questions with respect to the resolution 2? Go ahead, David.

Just trying to clarify a few things, Chair. Ross is on a base of 1.5, which is fine for a company this size, $3 million conditional LTI, fine for a company this size if the performance is there. Certainly concerned with the wording, though, that your people who produced the annual report talked about, they say to assist in the motivation of one of the reasons. I would have thought that Ross would be adequately motivated anyway. I think that choice of word is unfortunate. But if we come to the main issue, Chair, splitting it between half relative TSR and half CAGR is fine. Where I've got a little bit of a concern or significant concern is that the 50% relative TSR, it's coming off such a low base, Dexus. As I talked last year, it's the worst. And if it was coming off an even base, no problem at all. But just a bit of a concern that's coming off such a really low base of TSR. But secondly, CAGR, if you could clarify. 7% to 9%, it's not great. It's okay. As the annual report says, it's better than excess delivered in previous years. But again, that's a very low base. I'm not sure that Goodman's or some of the more aggressive REITs would be happy with 7% to 9% because that's a combination of dividends and capital growth. So it's not a particularly great hurdle. But where I've also got a concern, Chair, is that I assume that formula relates to CAGR off the very heavily discounted share price rather than off NTA. To be frank, I think it was more balanced and fair and more aligned with shareholders if it came off NTA because if this horrendous discount of, as I talked including funds management, maybe 45%, that narrows to 25, which is still substantial, Ross will clear that hurdle very comfortably. I would have thought basing it off NTA rather than massively discounted share price is fair, but I'll leave that to you, Chair.

Look, these are all really good comments, David, and we have been through a lot of iterations. And look, one of the reasons why we chose the share price is that it's easy to see what it is. We can't tamper with that. And it's easy to calculate transparent for shareholders. Together with Alana and myself, we met with a whole range of shareholders on this issue. And far and away, the main thing that they wanted was simplicity. And if you go back a few years, we had other financial measures that were contained within the LTI. We had return on capital employed. We had other measures. And we felt that this one was the most simple, and I think that that's why I think you saw the support for the rem report generally. It was because the shareholders felt that this was the right thing to do. The second point is we also agreed with the shareholders that we wouldn't keep tampering with it every year, that we would go to a measure, and we would use that and let it sort of solidify. It's good for employees as well that we don't keep changing these measures. And look, the final one is your question about should you do it off NTA. I think this is 3 and 4 years, and so compounding of between 7% and 9% over 3 and 4 years does -- will create some value. My guess is the NTA is going to go up at the same time because if we're creating -- if we're encouraging the share price up, it means that we're actually doing things with the underlying business. So I think I'd like to think that if we're closing the gap and growing the NTA at the same time, then the future returns can be well in excess of that. But these are good questions. And with LTI, you can't please everybody. The LTI, if you see in the rem report from -- that were due to vest this year were from 4 years ago and 3 years ago, they didn't meet any of their financial hurdles. And so I think there's good alignment with the shareholders in these things as well.

Just a brief follow-up. Look, I totally agree, simple is great. A lot of these formulas are very complex, so well done on making it simple. But my issue is that Ross has been in the chair for 2 years or so, COO before that. Stock value has declined dramatically. I think it peaked at $13 a few years ago. Sitting there at $5.60 today. My issue is not against the incentive. I think terrific if Ross gets $3 million added to his $1.5 million, fine. But it's just such a low bar. Chair, 45% -- I'm just using that figure generally, adding some notional value for the funds platform. If it happens to drop, go to 25, he gets the $3 million, assuming he also gets the TSR as well. But look, it's done. It's been approved. I'm just a little bit surprised at the low bar you've set.

Are there other comments or questions? Anything from online?

Chair, we have an online question from Stephen Mayne, who asks. Could the CEO summarize his past LTI grants as to whether they have vested or lapsed? Also, has he ever sold any ordinary shares in the company or bought any on market without relying on an incentive scheme to build his equity position? Please don't say look it up in the annual report and through ASX announcements. Given the complexity, could the CEO actually summarize the situation in 1 minute?

Stephen, just canceled my response before I gave it. So I can answer part of that. I do know because in the last couple of years, there has not been vesting on long-term incentives. And so I mean these are an important part of the remuneration makeup for executives. And so they have not been vesting. And I do know that Ross has sold some shares, and we discuss that each year. And I'm sure that, that was for personal financial planning reasons, and he does that with the blessing of the Board. Ross, is there anything you wanted to add to that?