Dexus (ASX:DXS): Unlike its peers, more than a landlord! But its still vulnerable to the property market

Dexus (ASX:DXS) has been on hit amidst the RBA’s firing line to tame inflation, and just when we all thought the war was over…it looks like it isn’t. The property space on the ASX had a difficult few years, but 2025 was probably the best year since the pandemic as rates fell. But now that there’s a risk rates will rise…does it spell doom for Dexus? Not necessarily, even if the only reason is because it operates differently to its peers. As we noted in the title: it is more than a landlord.

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Overview of Dexus (ASX:DXS)

Dexus (ASX: DXS) is one of Australia’s largest real estate groups and a major REIT (Real Estate Investment Trust) on the ASX. It is capped at over $7bn and has $50.1bn Funds Under Management (FUM), of which $14.5bn is directly managed and the other $35.6bn is third-party managed but part of its platform.

Dexus is not just a landlord, it is an investment operator and generates fee-based revenue in addition to asset income. It has $10.7bn in office exposure, $8.1bn in industrials, $10.5bn in retail and $20.3bn in infrastructure, healthcare and alternative assets.

The company we know today originated from property trusts that were founded and listed by Deutsche Bank. The mid-2000s saw these trusts stapled together and an entity was formed to buy Deutche Bank’s remaining rights and it adopted the current name. 2022 saw Dexus buy AMP’s real estate and domestic infrastructure equity business, thus becoming more than a landlord.

Mixed fortunes in various sectors

The office space has been the most cyclical and headline-sensitive part of Dexus’s portfolio after multiple years of valuation declines and weak leasing, there are now signs of recovery in premium office markets, especially in the Sydney and Melbourne CBDs, but weakness persists in secondary CBDs. Rising capitalisation and discount rates due to higher interest rates had previously pushed down valuations and investor appetite. And of course, there is the risk this will happen again.

Industrial and logistics properties are a strong performer thanks to structural demand drivers (e-commerce, supply chain logistics). Dexus’s involvement in retail has been more mixed. Its involvement is far more strategic (e.g., shopping centres via funds). Recent moves including expanded stakes in major regional centres like Westfield Chermside implies confidence in the future.

Funds management is important too

But then there’s the funds management segment, and we think this is one of the most important (and often misunderstood) parts of the investment proposition, especially in a higher-rate valuation environment. To make a long story short, Dexus operates like Charter Hall – albeit somewhat less diversified. This

As mentioned above Dexus manages property and infrastructure assets for external investors. It earns management fees (and sometimes performance fees). The capital does not sit on Dexus’s balance sheet, so it is capital-light, less exposed to valuation swings and less sensitive to interest rates than direct property ownership.

The fact that this segment is more than twice as large as directly owned assets should change investor perception significantly – at the very least, they should stop thinking that this is a distinction without a difference which they could be forgiven for thinking at first glance.

Now of course, this segment is not risk-free. After all, management fees are a % of FUM and performance fees (earned when returns exceed benchmarks or other targets) are sensitive to transaction volumes, asset valuations and investor risk appetite – all of which can be impacted by interest rates.

But ultimately, in the last rate cycle, funds management earnings were far more resilient than office rents or asset values.

FY25 was a good year

FY25 saw 2 rate cuts and there was one more at the start of FY26. There are positives and negatives to be seen in Dexus’ results. On the plus side, transaction activity is slowly returning, institutions are selectively deploying capital again in certain segments, particularly industrials and prime, well-located office space. Nonetheless, performance fees remain below peak levels.

The company’s total revenue from ordinary activities was $661.5m – 7% up from the prior year and $476.7m of which came from management fees. The company made a total comprehensive loss of $14.8m, which was narrowed from a $32.7m loss the year before, or 1.26c EPS. But the company’s statutory profit was $136.1m, compared to a $1.58bn net loss in FY28 which was driven by a stabilising market.

Nonetheless, the key metric was FFO (Funds From Operations) and it delivered 45c per share, of which 37c was distributed – both in line with its guidance. CEO Ross Du Vernet declared,’ We are now past the inflection point with valuations turning positive’.

Occupancy was 92.3% in the office portfolio and 96.2% in the industrial portfolio. Gearing was 31.7%, within the 30-40% target range, although its debt maturity was an average of 4.3 years and it committed to $700m in spending in FY26 and there was a further $4.3bn in uncommitted projects. From an ESG perspective, the company boasted that it maintained net zero emissions across Scope 1, 2 and ‘some’ Scope 3 emissions.

The outlook

For FY26, Dexus guided to Adjusted FFO of 44.5-45.5c per security and for a 37c distribution. Of course, this was before the threat of rate hikes, but we might hear more in its 1H26 results in February. Analysts’ mean target price is $7.92 per share, implying 14% growth. But this would still be a discount to its P/NTA which is $8.81 – that price would imply 28% upside. Its P/E is 11.1x based on consensus estimates. Meanwhile, Charter Hall is 25.6x P/E for FY26 and it is trading nearly 5x its NTA per share.

This would suggest that Dexus could be undervalued, but of course investors need to look at why CHC might be significantly larger or trading at a premium. And of course, investors need to look at where rates are headed. Even if rates just stay on hold for now, secondary office assets and weaker markets remain under pressure despite secular improvements.

And of course, high interest environments previously weighed on performance and asset values; rate cuts and stabilisation are now helping valuations but could hinder them again. Ultimately, the bottom line is property valuations are sensitive to capitalisation and discount rates…in any environment.

But the big question many will want to know is should you invest in it. If you had to buy a stock in the property sector, it’d be tough to pick another company (except perhaps Charter Hall) because it is both a landlord and a fund manager. Nonetheless, we are not so sure we’d look at the property market right now, because just when there was light at the end of the tunnel, we are no longer certain we are at the end.