A year after a remuneration backlash Dexus dodges a second strike and pushes on with office sales

Property group Dexus did cop some more stockholder angst but has avoided a second strike against its remuneration report.

Dexus chief executive Darren Steinberg. Picture: Britta Campion

Property group Dexus is stepping up its sales of office buildings as it prepares for tougher times in commercial property on the back of interest rate rises hitting values.

The trust is selling older assets, partly as it moves to fund its development pipeline which includes two new complexes next to Sydney’s Central Station for technology companies, including Atlassian.

At its annual meeting in Sydney on Wednesday, Dexus avoided a second strike by stockholders. However, it did cop an 8.3 per cent protest vote against its remuneration report and a 24 per cent vote against former politician Nicola Roxon’s re-election, after proxy adviser ISS recommended against her on the basis of concerns about earlier pay practices.

Dexus has flagged that tough times will continue for property companies and departing chairman Richard Sheppard said that he hoped long-serving chief executive Darren Steinberg would remain as some long-time property CEOs have departed other companies. Former banker Warwick Negus is taking over as chairman.

“We anticipate a challenging period over the next two years with rising interest rates and continued economic uncertainty,” Mr Sheppard said.

Dexus kept guidance at distributions of 50c to 51.5c per security for this financial year, below the 53.2c per security last year. Mr Sheppard blamed rising interest rates for the lagging Dexus security price, which he said was in line with the sector.

“Security prices across the A-REIT sector, including Dexus’s, have declined significantly since April this year,” he said.

“This has been due to global economic factors, in particular the sharp rise in interest rates that we have experienced over the same time period.”

Mr Sheppard said that buying AMP Capital’s local real estate and infrastructure platform accelerated its strategy and positioned Dexus as a leading real asset manager. Mr Sheppard said Dexus was selling assets to improve the quality of its balance sheet portfolio and to fund its higher-returning development pipeline.

The chairman said the company had responded to the first remuneration strike at last year’s annual meeting. The board had “undertaken a thorough review of the remuneration framework” and made changes that would come into effect this financial year.

Dexus said the AMP Capital deal was progressing well even as some of the funds have been lost to other managers. It is protected by an earn-out mechanism with the price of the acquisition cut to reflect outflows.

Mr Steinberg said the company now expected about $18bn of funds to transfer across from the AMP Capital platform. The earn-out amount payable by Dexus has reduced to a maximum of $25m.

“Our next phase of growth will be underpinned by the AMP Capital transaction which will position Dexus as a leading real asset manager,” Mr Steinberg said.

“It will bring with it an expanded product offering, new capabilities in infrastructure and an enhanced retail platform.”

The deal will lift Dexus’s funds under management to about $63bn across real estate and infrastructure assets. The fund unit will grow to about $44bn of pooled funds, joint ventures, mandates and listed funds.

While its stock price is weak on the back of global concerns about office markets, Dexus is sticking to its development plans, is beginning construction on Atlassian Central and has won approval for Central Place Sydney.

The company has sold a series of properties and is disposing of more office and industrial assets. In July, Dexus settled on the sale of 383-395 Kent St, Sydney and its half interest in 140 and 150 George St, Parramatta, for $462.3m.

This month it sold the Audi Centre in Fortitude Valley in Brisbane for $98m – a 6 per cent discount to book value.

And now Shakespeare Property Group is targeting the purchase of an office block in Nicholson St in Melbourne CBD from Dexus for about $250m.

The mooted deal, via Cushman & Wakefield, comes in the wake of Shakespeare swooping on Sydney‘s Domain House, which is being sold by the Balnaves family for about $140m.

Dexus’s development pipeline was $17.7bn at the end of June and it is also forging ahead with industrial projects, which are being leased rapidly.