Dexus: Resilient Occupancies, Incentives Improving; Guidance Is Unchanged

Narrow-moat Dexus announced a solid third-quarter update, with high occupancies across its office and industrial assets. Tenant leasing incentives improved, decreasing 0.4% and 0.8% to 29% and 17.8%, respectively. Dexus’s office portfolio occupancy dipped 10 basis points to 94.4% but remains comfortably above market occupancy of 86.5%. Dexus' high concentration toward premium central business district office spaces has withstood broader occupancy challenges felt by the office market. Aligned with our unchanged full-year estimates, management reiterated an AUD 0.48 distribution and adjusted funds from operations to mirror fiscal 2023 results: around AUD 550 million. We maintain our fair value estimate of AUD 10.80. At current prices, Dexus screens as undervalued.