DEXUS

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DEXUS Property Group (ASX: DXS)
ASX release
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31 August 2015

2015 Annual reporting suite

DEXUS Property Group (DEXUS) today has released its 2015 Annual reporting suite. This includes:

2015 DEXUS Annual Review
2015 DEXUS Annual Report

The 2015 online Annual reporting suite including the 2015 DEXUS Performance Pack is available online at www.dexus.com. The 2015 printed reports will be mailed to Security holders who have elected to receive them today.

For further information please contact: Investor relations Media relations Rowena Causley T: +61 2 9017 1390 Louise Murray T: +61 2 9017 1446 M: +61 416 122 383 M:+61 403 260 754 E: [email protected] E: [email protected]

About DEXUS

DEXUS Property Group is one of Australia’s leading real estate groups, investing directly in high quality Australian office and industrial properties. With $19.1 billion of assets under management, the Group also actively manages office, industrial and retail properties located in key Australian markets on behalf of third party capital partners. The Group manages an office portfolio of 1.7 million square metres located predominantly across Sydney, Melbourne, Brisbane and Perth and is the largest owner of office buildings in the Sydney CBD, Australia’s largest office market. DEXUS is a Top 50 entity by market capitalisation listed on the Australian Securities Exchange under the stock market trading code ‘DXS’ and is supported by more than 32,000 investors from 21 countries. With 30 years of expertise in property investment, development and asset management, the Group has a proven track record in capital and risk management, providing service excellence to tenants and delivering superior risk-adjusted returns for its investors. www.dexus.com

Download the DEXUS IR app to your preferred mobile device to gain instant access to the latest stock price, ASX Announcements, presentations, reports, webcasts and more.

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DEXUS Funds Management Ltd ABN 24 060 920 783, AFSL 238163, as Responsible Entity for DEXUS Property Group (ASX: DXS)

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Annual Review 2015

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Creating Value

The DEXUS Offi ce Partnership DEXUS undertook transactions The active repositioning of offi ce portfolio achieved a 12.7% and progressed developments, properties contributed to >60% unlevered total return satisfying the investment of the $42.6 million in trading for FY15 objectives of its third party clients profi ts realised in FY15 PAGE 7 PAGE 39 PAGE 42

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OVERVIEW

DEXUS ANNUAL REVIEW 2015

ABOUT THIS REPORT

The 2015 Annual Review is a consolidated summary of DEXUS Property Group’s performance for the fi nancial year ended 30 June 2015. This report should be read in conjunction with the reports that comprise the 2015 Annual Reporting Suite.

In this report unless otherwise stated, references to ‘DEXUS Property Group’, ‘the Group’, ‘we’, ‘us’ and ‘our’ refer to DEXUS Property Group comprising the ASX listed entity and the Third Party Funds Management business. References to ‘DEXUS’ relate specifi cally to the portfolio of properties in the ASX listed entity. Any reference in this report to a ‘year’ relates to the fi nancial year ended 30 June 2015. All dollar fi gures are expressed in Australian dollars unless otherwise stated.

DEXUS referred to the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines to determine the report’s boundaries for guidance on identifying and reporting its material issues, management approaches and reporting key performance indicators across stakeholder groups including investors, employees, customers, suppliers and the community. The 2015 Annual Reporting Suite has been prepared in accordance with GRI G4 ‘Core’ reporting guidelines and nominated indicators have been externally assured. The GRI index is provided with the 2015 Sustainability Performance Pack at www.dexus.com/gri

DEXUS’s Funds From Operations (FFO) is in line with Property Council of Australia’s defi nition and comprises net profi t/loss after tax attributable to stapled security holders calculated in accordance with Australian Accounting Standards and adjusted for: property revaluations, impairments, derivative and foreign exchange (FX) mark-to-market impacts, fair value movements of interest bearing liabilities, amortisation of tenant incentives, gain/loss on sale of certain assets, straight line rent adjustments, deferred tax expense/benefi t, rental guarantees, coupon income and distribution income net of funding costs.

REPORT SCOPE

The Annual Review covers fi nancial performance at all locations. Environmental data only includes properties under the Group’s operational control as defi ned under the National Greenhouse and Energy Reporting System (NGER Act). All resource performance fi gures in this report display consumption and GHG emissions on an intensity (per square metre) basis. Absolute consumption and additional information is provided in the 2015 Performance Pack available from the online reporting suite at www.dexus.com

INDEPENDENT ASSURANCE

In addition to auditing DEXUS’s Financial Statements, PricewaterhouseCoopers (PwC) has provided limited assurance over select data from Australia and New Zealand within the integrated online reporting suite. This covers the 12 months to 30 June 2015 in accordance with reporting criteria (www.dexus.com/crs). The assurance statement, the GRI verifi cation report and associated reporting criteria documents will be available from the online reporting suite in early September 2015.

Achieved 9.3% growth in FFO per security and distribution per security PAGE 22

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Increased Third Party Funds under management by 10[%]

PAGE 38

Achieved a 6 star Green Star design rating for 480 Queen Street, Brisbane and 5 star Green Star design ratings for 5 Martin Place, Sydney and Kings Square in Perth PAGE 36

2015 Highlights

2015 DEXUS ANNUAL REVIEW 1

Announced the $ 635mm acquisition of Waterfront Place and Eagle Street Pier jointly with DEXUS Wholesale Property Fund PAGE 29

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$ 635mm

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10 Properties rated 5.5star NABERS Energy rating in DEXUS’s offi ce portfolio PAGE 8

Achieved a Return on Equity of 11.5[%] above the 9-10% target through the cycle PAGE 5

Realised trading profi ts of $ 42.6m in line with target of approximately $40m PAGE 42

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1 2 3 4

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Increased DEXUS’s offi ce portfolio occupancy to

95.3[%] 94.6% at 30 June 2014 PAGE 25

OVERVIEW

This section provides an overview of the Group and its FY15 activities.

Highlights About DEXUS	1 2
Chair and CEO Review	4
Strategy	10
Delivering FY15 Commitments	12
Sustainability Approach	13
FY16 Commitments	14
Material Issues Governance Market Outlook	16 18 20

PERFORMANCE

This section provides further information on the FY15 performance across key areas of the business.

Group Performance DEXUS Property Portfolio – Off ce – Industrial – Developments	22 24 32 36
Third Party Funds Management	38
Trading	42

PEOPLE

This section provides information on the people at DEXUS.
People & Culture	44
INVESTOR RELATIONS	48
DIRECTORY	49

2015 ANNUAL REPORTING SUITE

DEXUS Property Group presents its 2015 Annual Reporting Suite for the year ended 30 June 2015, demonstrating how it manages its fi nancial and non fi nancial performance in line with its strategy.

This 2015 DEXUS Annual Review

An integrated report summarising fi nancial, operational and Corporate Responsibility and Sustainability (CR&S) performance. This report should be read in conjunction with the 2015 DEXUS Annual Report.

The 2015 DEXUS Annual Report

Provides DEXUS’s Consolidated Financial Statements, Operating and Financial Review, Corporate Governance Statement and Board of Directors information. This report should be read in conjunction with the 2015 DEXUS Annual Review.

The 2015 DEXUS Combined Financial Statements Comprises the Financial Statements of DEXUS Industrial Trust, DEXUS Offi ce Trust and DEXUS Operations Trust. This report should be read in conjunction with the 2015 DEXUS Annual Report and Annual Review.
The 2015 DEXUS Performance Pack

Provides the data and detailed information supporting the results outlined in the 2015 DEXUS Annual Review and is available in the online Annual Reporting Suite at www.dexus.com .

The 2015 Annual Reporting Suite is available in hard copy by email request to [email protected] or by calling +61 1800 819 675 .

2 OVERVIEW ABOUT DEXUS

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About DEXUS

DEXUS Property Group is one of Australia’s leading real estate groups, investing directly in high quality Australian offi ce and industrial properties.

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TOTAL PROPERTIES
145
TOTAL NLA
4.7m sqm
TENANTS
4,500
OFFICE $12.4bn
INDUSTRIAL $2.9bn
RETAIL $3.8bn
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DEXUS Property Group (DEXUS or the Group) is an Australian Real Estate Investment Trust (A-REIT) listed on the Australian Securities Exchange (ASX) that invests in, develops, manages and trades Australian offi ce and industrial property. On behalf of third party clients, which are mainly domestic and international pension funds, DEXUS also transacts, develops, and manages Australian offi ce, industrial and retail property.

The owned portfolio consists primarily of high quality central business district (CBD) offi ce properties, held long term and leased to derive stable and secure ongoing income streams. Developments, acquisitions and divestments are undertaken to enhance the quality and value of the portfolio.

DEXUS generates both rental income from its own properties and fees for undertaking leasing, property management and development on behalf of third party clients. In addition, DEXUS has a trading trust that enables the development and repositioning of properties to enhance value and sell for a profi t.

The total property portfolio of $19.1 billion as at 30 June 2015 includes $9.5 billion of owned property, with a $1.2 billion development pipeline and $9.6 billion of property managed for third party clients, with a $2.3 billion development pipeline.

Total Group Portfolio

$19.1bn

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OFFICE
$12.4bn
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INDUSTRIAL
$2.9bn
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RETAIL
$3.8bn
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DEVELOPMENT PIPELINE FUTURE GROWTH $3.5bn

DEXUS has more than 350 professionals with offi ces in Sydney, Melbourne, Brisbane and Perth. The team manages approximately 1.7 million square metres of offi ce space, 2.2 million square metres of industrial space and 0.8 million square metres of retail space, making DEXUS the largest offi ce manager and second largest industrial manager in Australia.

2015 DEXUS ANNUAL REVIEW 3

DEXUS Portfolio

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Third Party Funds Portfolio

$9.5bn

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OFFICE
$7.8bn
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INDUSTRIAL $1.7bn

$9.6bn

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OFFICE
$4.6bn
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INDUSTRIAL
$1.2bn
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RETAIL
$3.8bn
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DEVELOPMENT PIPELINE $1.2bn

DEVELOPMENT PIPELINE $2.3bn

4 OVERVIEW CHAIR AND CEO REVIEW

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Chair and CEO Review

Achieved a distribution of 41.04 cents per security, an increase on FY14 of 9.3[%]

DEXUS Property Group delivered strong results across key business areas in 2015, ensuring it is well positioned to continue to create value for investors.

DEXUS Offi ce Partnership portfolio delivered an unlevered total return for 12 months to 30 June 2015 12.7[%]

2015 DEXUS ANNUAL REVIEW 5

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We are pleased to present the 2015 Annual Review for DEXUS Property Group.

Investment demand for Australian real estate remains strong, despite volumes having tapered off from the record levels seen at the end of 2014 due to the limited amount of available stock. In this competitive market, we successfully acquired and divested properties on balance sheet and for our third party clients.

DEXUS has had a successful 12 months, refl ecting our determination to create value at every level of our operations and ensuring we are well-positioned to continue to create value for investors.

DEXUS’s performance during the year has met or exceeded all of our fi nancial objectives.

DELIVERING ON STRATEGY

Our strategy continues to deliver for investors and in FY15 we further positioned DEXUS as a leader in the Australian real estate sector.

We delivered on the upgraded guidance for our FFO and distribution per security, which both increased 9.3% on the prior year and contributed to the average growth in distributions per security of 8.6% per annum since FY12.

Our people remained focused on enhancing returns for investors and creating value through our four strategic objectives:

To be the leader in offi ce Investing in and developing properties and spaces that our customers want to occupy

DEXUS’s net profi t increased 52.2% to $618.7 million. Return On Equity[1] for the 12 months to 30 June 2015 was 11.5%, above our target of 9–10% per annum through the cycle, and ahead of the prior year which was impacted by the CPA transaction.

To have the best core capabilities Utilising our core capabilities to constantly improve the levels of service and amenity we provide to our customers

MARKET CONDITIONS

Our strong fi nancial outcomes were achieved in a market characterised by mixed economic news, both domestically and globally. Offi ce markets are showing early signs of improvement, particularly in the Sydney and Melbourne CBDs, however the recovery in the Brisbane and Perth markets remains subdued.

To be the wholesale partner of choice Partnering with third parties to grow in core markets and attract expertise
To actively manage capital and risk Maintaining a conservative approach to fi nancial and operational risk

With the launch of DEXUS Place in May 2015, DEXUS can now provide workplace solutions from one hour to 10 years

During the year, we leveraged our diverse capabilities to:

Improve the performance of our property portfolio
Drive the performance of, and generate revenue from, our funds management business
Deliver trading profi ts from identifi ed trading opportunities

In our property portfolio we focused on maximising cash fl ow by working closely with new and existing customers to secure great leasing outcomes throughout the year, increasing offi ce portfolio occupancy to 95.3%. We created value through meeting the needs of a diverse range of customers, including expanding our fi tted suites offering to attract small to medium businesses (refer to pages 26–27).

In our third party funds management business , we transacted properties and progressed the development pipeline to satisfy the investment plans of our clients, growing third party funds under management by 10% to $9.6 billion (refer to pages 38–41). We also progressed plans to enhance the retail space at the base of our offi ce buildings to improve customer amenity and enhance returns (refer to page 41).

In our trading business , we delivered an improved after tax profi t of $42.6 million driven by settlements of properties that we had actively repositioned. We also made progress on replenishing the trading pipeline for future years (refer to pages 42–43).

Return on equity is calculated as the growth in NTA per security plus the distribution paid/payable per security divided by the opening NTA per security.

6 OVERVIEW CHAIR AND CEO REVIEW

STRONG RETURNS FROM COMMONWEALTH PROPERTY OFFICE FUND TAKEOVER

Our acquisition of Lakes Business Park, in Botany in January 2015 presents an opportunity to create value though a dual strategy to enhance value and advance a trading opportunity (refer to page 35).

We realised value from the takeover of Commonwealth Property Offi ce Fund (CPA), by acting on identifi ed opportunities in the portfolio. The DEXUS Offi ce Partnership[2] portfolio delivered an unlevered total return 12.7% for the 12 months to 30 June 2015. DEXUS’s investment in the Offi ce Partnership delivered a 20.4% levered return to DEXUS for the year.

In June 2015, we announced that DEXUS and DEXUS Wholesale Property Fund (DWPF) had entered into a conditional agreement to jointly acquire Waterfront Place and Eagle Street Pier in Brisbane (Waterfront Place Complex) for a total price of $635 million[3] , building on our established presence in the Brisbane CBD offi ce market and enabling us to leverage our expertise in a market where we have been able to demonstrate leasing success.

DELIVERING SOLID SECURITY HOLDER RETURNS

DEXUS has outperformed the A-REIT index by 190 basis points over the past fi ve years. While DEXUS underperformed the A-REIT index over one and three year periods, it has delivered solid total security holder returns of 15.8% per annum over both of these periods.

We continued to improve the diversifi cation, duration and cost of our debt through accessing a market we know well, raising $250 million through a US Private Placement issue. Further details on our capital management activities are outlined on page 23.

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As at 30 June 2015
DEXUS
S&P/ASX 200 Property
Accumulation Index
20.3 [%]
18.4 [%]
15.8 [%] 15.8 [%] 16.2 [%]
14.3 [%]
1 Year 3 Years 5 Years
Source: UBS Securities Australia 2015
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FOCUS ON THE CUSTOMER

We have made it a priority to increase our understanding of our customers and their needs, providing workspace solutions for a diverse range of customers. In offi ce, we continued to deliver on our fi tted suites offering to capture demand from a rising number of small to medium sized businesses. We also introduced a number of initiatives to enhance the customer experience and these are outlined in the Offi ce section from pages 24–31.

Our active leasing approach resulted in the leasing of almost 400,000 square metres of space across the DEXUS portfolio, representing a 25.6% increase in leasing volumes compared to the prior year.

MAINTAINING A STRONG BALANCE SHEET

In a competitive market, we sourced and secured new opportunities where we saw potential to add value to our portfolio or satisfy the objectives of our third party clients. We conducted these activities while maintaining a strong balance sheet, with gearing of 28.5% at 30 June 2015.

CREATING VALUE THROUGH DEVELOPMENT

Our key offi ce developments at 5 Martin Place in Sydney and Kings Square in Perth will enhance the quality of our offi ce portfolio and contribute to future growth. The Kings Square development project is nearing completion and Ashurst moved into 5 Martin Place in July 2015.

The strength of DEXUS’s balance sheet was enhanced through an equity raising in April that included a $400 million institutional placement, and a Security Purchase Plan for eligible security holders which raised a further $77.8 million. This equity raising enabled DEXUS to pursue compelling acquisition opportunities while maintaining low gearing.

Further details relating to DEXUS’s development pipeline are provided on pages 36–37 and the Third Party Funds Management development pipeline on pages 38–41.

Including the divestment of non-strategic and trading properties, we undertook $2 billion of transactions across the offi ce, industrial and retail sectors.

DEXUS executed the $3.7 billion takeover of Commonwealth Property Offi ce Fund in April 2014 and formed the DEXUS Offi ce Partnership with its capital partner, Canada Pension Plan Investment Board. 3. Excluding acquisition costs.

28.5[%] Gearing at 30 June 2015

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DEXUS CREATES AN INNOVATIVE LEASING EXPERIENCE

DEXUS is embracing innovative new technologies to enhance the marketing efforts deployed to attract new customers, and this year set a competitive new benchmark with the introduction of virtual reality tours for potential customers.

This new initiative transports potential tenants/customers to a virtual 3D world, enabling them to experience the sense of an offi ce space before it is built using innovative technology called Oculus Virtual Reality Experience.

Working collaboratively with Snepo Research, DEXUS identifi ed three properties – 45 Clarence Street, Gateway and Grosvenor Place in Sydney – all which were being actively leased.

Virtual reality experiences were designed for each of the buildings, highlighting the features of each space with expansive views and aspirational fi touts.

Without the restrictions of a physical build, the design of the virtual fi touts was tailored to potential tenants, and included trading fl oors, activity-based working and legal fi rm layouts, with the ability to tour between multiple levels.

With the successful implementation across three properties, DEXUS is looking at opportunities to create further virtual reality experiences at other properties in its portfolio.

2015 DEXUS ANNUAL REVIEW 7

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DEXUS Offi ce Partnership

DELIVERING A QUALITY RESULT FOR INVESTORS AND OUR PARTNER

DEXUS APPROACH

DEXUS executed the $3.7 billion CPA transaction in April 2014 and formed the DEXUS Offi ce Partnership with capital partner, Canada Pension Plan Investment Board
The partnership’s portfolio was fully integrated onto the DEXUS platform by July 2014
DEXUS undertook an active approach to leasing, including:
adding a lobby café at 175 Pitt Street to generate additional income, and enhance customer amenity
repositioning the leasing approach at 5 Martin Place and 60 Castlereagh Street in Sydney

VALUE CREATED

The property portfolio exceeded original performance assumptions, delivering a 12.7% unlevered total return for the 12 months to 30 June 2015
DEXUS’s investment in the Offi ce Partnership delivered a 20.4% levered return to DEXUS for the year
improved occupancy of the portfolio from 92.2% at acquisition to 94.6% at 30 June 2015
secured Challenger at 5 Martin Place, increasing pre-committed offi ce space at the development from 41% at acquisition to 75%, and at 30 June 2015 was 82% committed
increased property values by $182.4 million (at 100%)
portfolio cap rate tightened from 7.24% to 6.99%

145 Ann Street, Brisbane

8 OVERVIEW CHAIR AND CEO REVIEW

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60 Castlereagh Street, Sydney

CREATING A HIGH PERFORMANCE CULTURE

A great example of DEXUS innovation in action was the launch of DEXUS Place, a state-of-the-art premium meeting, training and conference facility. The facility was created following extensive market research and is specifi cally tailored to meet the needs of our customers for on-demand access to quality meeting space. Our fi rst facility is located at One Margaret Street in Sydney and we have plans to replicate the facility in Melbourne and Brisbane.

We create value through leveraging the expertise of our people and invest in their development so they can perform at their best. Over the year, we invested in leadership and training programs to further develop our high performance culture. We also provided opportunities for our people to move to different areas within the business to bring fresh ways of thinking into how we do business, and awarded more than 15% of new job roles to internal applicants.

In an effort to ensure a clear approach to how innovation is harnessed, a framework has been created to systematically prioritise and evaluate ideas generated within the business. This framework is overseen by our Innovation Forum comprising members of the Group Management Committee and chaired by the CEO.

It is important to us that we maintain an inclusive and diverse culture as we believe diversity enables our people to make better informed decisions. During the year we introduced a new superannuation framework for parental leave to assist in closing the superannuation gender gap. We have also progressed diversity targets, and details of these and other initiatives are included in the People and Culture section from pages 44–47.

Along with innovation we have also worked hard to instil a culture of continuous improvement to achieve operational effi ciencies in the way we work. During the year we launched a mechanism to capture ideas from the business and enable improvements to be shared across the Group. This has had the benefi ts of reducing costs and saving time.

DRIVING BUSINESS EXCELLENCE AND HARNESSING INNOVATION ACROSS THE GROUP

As traditional business models continue to be challenged, we have set innovation as a fundamental driver of business excellence. We recognise that developing a culture of innovation to drive new products and processes is essential to the continual strengthening of our competitive position.

ENHANCING ENVIRONMENTAL PERFORMANCE

DEXUS APPROACH

DEXUS implemented operational procedures to enhance the sustainability performance of its offi ce portfolio
Completed NABERS rating assessments across 51 offi ce properties in 2015
Piloted the Green Star rating tool program at 60 Castlereagh Street, Sydney measuring management, indoor environment quality, energy, transport, water, emissions and innovation

VALUE CREATED

Achieved NABERS Energy ratings of 5.5 stars at 10 properties in DEXUS’s offi ce portfolio.
DEXUS now has 26 offi ce properties in its portfolio with a NABERS Energy rating of 5 stars or above, improving customer appeal and reducing outgoings for tenants

DEXUS RECOGNISED FOR ITS PERFORMANCE IN SUSTAINABILITY

DEXUS was again recognised as a sustainability leader in the 2015 Carbon Disclosure Project (CDP). In this year’s survey, DEXUS received a Climate Performance Leadership Award and scored a near-perfect score of 98/100 for disclosure and was awarded an ‘A’ for performance in carbon emissions management.

DEXUS was also identifi ed as the leading REIT and one of only fi ve Australian companies represented in CDP’s Climate Performance Leadership Index (CPLI). The CPLI recognises those companies who can demonstrate through results that they are actively reducing emissions.

In addition DEXUS is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and maintains its commitment to invest responsibly and raise awareness of responsible investment with its stakeholders. In the 2015 UNPRI survey DEXUS achieved an ‘A+’ perfect score for its overall approach to responsible investment and an ‘A’ score (48 out of 51) for its direct property management approach in the UNPRI survey.

2015 DEXUS ANNUAL REVIEW 9

SUSTAINABILITY APPROACH

ANNUAL GENERAL MEETING

Our Annual General Meeting (AGM) was held at our head offi ce at Australia Square in October 2014. All resolutions were passed. Post the AGM, a number of investors took the opportunity to tour two of our Premium properties, Governor Phillip Tower at 1 Farrer Place, and 1 Bligh Street in Sydney.

The way we look at sustainability continues to evolve to respond to new perspectives. During the year, after consulting with our key stakeholders, we revised our sustainability approach to embrace the broader ecosystem in which we operate.

Through our new approach we continue to set commitments targeting our people, community, environment and customers, with ‘cities’ introduced as a new area of focus. Recognising the role we play in creating leading cities, we continued to position our portfolio to be successful in a low carbon economy, while monitoring the current international debate on climate change for potential local impacts.

OUTLOOK AND FUTURE PRIORITIES

The economic outlook for the year ahead remains subdued, with the economy expected to grow at a similar rate in FY16. Over the next year, the economies of New South Wales and Victoria are likely to outperform other states. Queensland will remain a two-tier offi ce market and Western Australia’s economic performance will lag as it recovers from the end of the mining boom.

We have developed commitments for FY16 against each key objective and these are outlined on pages 14–15 of this report. Further information on our sustainability approach is detailed on pages 13–15.

Positive leasing momentum is expected to continue in Sydney and Melbourne, where the majority of our properties are located, as positive business confi dence supports a mild improvement in tenant demand. However, rental growth prospects remain relatively subdued in FY16 due to the availability of new supply.

BOARD OF DIRECTORS

The Board renewal process over the past few years has produced a strong Board of Directors with a broad and diverse skill set. There were no changes to the Board this year, with the Board comprising seven non-executive directors and two executive directors. Further details relating to the Board are included in the Corporate Governance Statement in the Annual Report.

Investment demand is expected to remain high for quality offi ce properties in our core markets of Sydney, Melbourne, Brisbane and Perth.

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This should result in a more competitive transactional landscape which will provide potential upside for our property values. Consequently, we will continue to recycle properties and selectively invest in opportunities where we have high conviction.

Looking ahead to FY16, we will continue to create value and position the Group for future growth by maximising the performance of our core property portfolio.

Our business has a strong leadership team, supported by outstanding people. On behalf of the Board, we would like to thank our employees around Australia for their dedication and hard work in delivering these results.

Barring unforeseen changes to operating conditions, DEXUS’s guidance[1] for the 12 months ending 30 June 2016 is for FFO per security growth of 5.5–6.0%, with FFO from the underlying business (excluding trading profi ts net of tax) expected to grow by 3.0–3.5%.

Distributions will be paid in line with free cash fl ow, to deliver growth in distribution per security of 5.5–6.0% for the 12 months ending 30 June 2016.

Finally, we would like to thank you, our security holders, for your continued support. We are committed to building on DEXUS’s strong foundations and delivering superior risk- adjusted returns.

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Chris Beare Chair

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Darren Steinberg CEO

11 August 2015

Barring unforeseen circumstances guidance is supported by the following assumptions: fl at like-for-like income across the DEXUS combined portfolio, weighted average cost of debt of circa 4.9%, trading profi ts of approximately $60m net of tax, Management Operations FFO of $45-50m (including third party development management fees), approximately $150m net proceeds from non-core property divestments during FY16, excluding any buy-back of DEXUS securities, and excluding any further transactions.

An expanded fi tted suites offering has attracted new small to medium sized customers

10 OVERVIEW STRATEGY

Strategy

Our vision is to be globally recognised as Australia’s leading real estate company. This will be achieved by delivering superior risk-adjusted returns from high quality Australian real estate by investing primarily in CBD offi ce properties.

Vision

To be globally recognised as Australia’s leading real estate company

Strategy

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Strategic LEADERSHIP CORE THIRD PARTY CAPITAL &
Objectives IN OFFICE CAPABILITIES PARTNERSHIPS RISK MANAGEMENT
DEXUS has objectives
in support of its
overall strategy
Being the leading owner Having the best people, strongest Being the wholesale partner Actively managing capital
and manager of Australian tenant relationships and most of choice in Australian offi ce, and risk in a prudent and
offi ce property effi cient systems industrial and retail property disciplined manner
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2015 DEXUS ANNUAL REVIEW 11

DEXUS’s strategy has several key elements:

1. Investing in and developing properties and spaces that DEXUS customers (tenants) want to occupy

DEXUS understands what drives demand from its customers and focuses on high quality properties in prime locations. This enables access to facilities and amenities which are sought after by DEXUS’s customers.

3. Partnering with third parties to grow in core markets and attract expertise

DEXUS partners with third parties to increase its access to properties and grow in core markets. The third party funds management platform enables DEXUS to invest in the best people, systems and processes, and ultimately minimise the costs of running the portfolio.

2. Constantly improving the levels of service and amenity provided to customers

DEXUS utilises its core capabilities to continually improve the amenity of its real estate through property refurbishment, and develops new products and services to enhance the customer experience. This focus increases the market appeal of DEXUS’s properties and assists in building meaningful relationships to attract and retain customers.

4. Maintaining a conservative approach to financial and operational risk

DEXUS has a strong ‘A-’ Standard & Poor’s credit rating and ‘A3’ investment grade rating from Moody’s. These ratings are the result of measuring, pricing and managing risk in a prudent manner. The success DEXUS has had in attracting signifi cant amounts of capital from third parties is an endorsement of its approach to investing and managing risk. Since 2012, DEXUS has raised more than $4 billion from some of the world’s largest and most sophisticated investors in unlisted property.

KEY EARNINGS DRIVERS – FY15 RESULTS

DEXUS sets short term targets against its earnings drivers across three areas of its business: the property portfolio, funds management and property services, and trading.

DEXUS achieved its FY15 targets against its earnings drivers. FFO from the owned property portfolio delivered $645.6 million, within the 80-90% target range. Funds management and property services delivered $37.9 million and the trading business achieved $42.6 million in profi ts (post tax). The following diagram summarises the FY15 result against the targets set for each of the earnings drivers.

Key Earnings Drivers PROPERTY PORTFOLIO FUNDS MANAGEMENT AND PROPERTY SERVICES TRADING Maximising performance from the DEXUS property portfolio Driving performance and generating revenue from funds management and property services Delivering trading prof ts from identif ed properties	FUNDS MANAGEMENT AND PROPERTY SERVICES	TRADING
	Driving performance and generating revenue from funds management and property services	Delivering trading prof ts from identif ed properties
FY15 Target Positive like-for-like income growth $35 – 40 million Approximately $40 million
FY15 Result $645.6 million Total portfolio +0.3% like-for-like income growth $37.9 million $42.6 million 89% of FFO 5% of FFO 6% of FFO***
	$37.9 million	$42.6 million
	5% of FFO*	6% of FFO*

FFO contribution is calculated before finance costs and Group corporate costs.

CORPORATE RESPONSIBILITY & SUSTAINABILITY

12 OVERVIEW

Delivering FY15 Commitments

DEXUS sets measurable performance targets across its key stakeholder groups in line with its strategy, and drives ethical and responsible performance in all areas of its operations.

Investors

Delivered PCA FFO of 59.5 cents per security, in line with guidance, an increase of 9.3% on FY14 Delivered a return on equity of 11.5%, above the 9–10% target through the cycle Outperformed the S&P/ASX 200 Property Index on a 5-year and 10-year basis, and achieved top quartile performance over a 10-year period Completed a materiality assessment and reported under GRI G4 reported standards CAPITAL MANAGEMENT

Reduced cost of debt by 20bps to 5.2% supported by credit rating upgrades

ACHIEVED

UNDERWAY

Secured US$250m long-dated USPP improving diversifi cation and debt maturity profi le Raised $478m of equity, reducing gearing to 28.5% at 30 June 2015, below the target range of 30–40%

OFFICE AND INDUSTRIAL

NOT ACHIEVED

Achieved 95.3% offi ce portfolio occupancy in line with target of >95% Reduced offi ce FY16 expiries to 8.8% and FY17 expiries to 12.7%. The FY17 expiry target was revised upward to 10.5% against the respective targets of 8.5% and 9.5%, due to the impact of short term leasing Achieved 0.3% like-for-like income growth in line with target of positive like-for-like income growth Reduced offi ce incentives to 15.0% (18.6% in FY14) and secured 85 effective deals (29 in FY14) TRADING

Delivered trading profi ts of $42.6m in line with target of approximately $40m THIRD PARTY FUNDS

CORPORATE RESPONSIBILITY & SUSTAINABILITY

DEXUS considers corporate responsibility and sustainability an integral part of its daily business operations. Committed to understanding, monitoring and managing social, environmental and economic impact, DEXUS delivers these responsibilities through measurable actions and within corporate policies.

Delivered a 12.7% unlevered total return for the DEXUS Offi ce Partnership portfolio in the 12 months to 30 June 2015 DWPF continued to outperform its benchmark over three and fi ve year periods Acquired four properties on behalf of DWPF and three properties in joint venture with DEXUS Industrial Partner Leased 74,834sqm of retail space, commenced development at three retail projects and three city retail projects

Tenants/Customers

Achieved an 8 out of 10 score for offi ce tenant satisfaction and 7.4 for industrial. Overall the satisfaction score was 7.9 an increase of 0.2 on FY14

Achieved Tenant Net Promoter Score of +23, exceeding our FY14 result of +10 compared to global customer service norms for the real estate industry

Launched DEXUS Place, a state-of-the-art premium meeting, training and conference facility with the latest collaborative technology
Installed Australia Post Parcel Lockers at nine properties providing a convenient parcel delivery service.
Partnered with Divvy, to provide an online booking system providing instant access to unused car parking spaces in DEXUS car parks
Partnered with GoGet to locate cars in DEXUS car parks, for tenants and their employees
Partnered with Diners Club to launch a charge card that provides a reward based rental payment option for DEXUS customers (tenants)

Suppliers

Established a supply chain management framework which:

Independently benchmarks to align with best practice
Centralises procurement functions for property operations
Implements standardised contracts across property operations, capital works and developments
Engages with direct suppliers to identify risks and opportunities

Increased awareness of the new supply chain framework through

Engaging with relevant employees and facility management partners
Hosting educational events for operational teams
Partnering with suppliers to deliver advanced building analytics
Conducted tenders in accordance with DEXUS’s Procurement Procedures and Code of Conduct
Continued to rationalise the number of suppliers and align with those that best meet DEXUS’s business needs across newly acquired properties resulting in operational effi ciencies

2015 DEXUS ANNUAL REVIEW 13

Sustainability Approach

Supporting Employees

Introduced Red-Carpet on-boarding technology platform
Implemented new personal development program (Forte) to create personal action plans to improve competencies and career opportunity
Implemented a refreshed Management Essentials Development program for all managers to increase management capability
Completed the fi nal components of the DEXUS Leaders Academy to increase leadership capability/expertise
Designed a DEXUS specifi c valuations training program to improve capability and increase internal certifi cations/accreditations
Launched Lean-In Committee and Lean-In Circles for employees
Launched DEXUS Health Week with a focus on a supportive/ inclusive culture and employee health/wellness
Implemented gender overlay for People and Culture processes – talent management, remuneration, appraisals
Implemented a new superannuation framework for parental leave to assist in closing the superannuation gender gap
Conducted Diversity and Inclusion awareness seminar

DEXUS’s sustainability approach continues to evolve to respond to new perspectives. In FY15, DEXUS revised its approach, after consultation with internal and external stakeholders, to embrace the broader ecosystem in which it operates.

DEXUS’s revised sustainability approach is aligned with its strategy through its overarching goal of delivering “Sustained Value”. This is achieved through the key themes of:

Connectivity – using technology to enable connectivity between people and places and smart operations of DEXUS’s business and buildings
Liveability – creating vibrant, inspiring and fl exible work places which enhance productivity and foster the well-being of employees and customers
Resilience – increasing resilience so that buildings and spaces are adaptive and customers and DEXUS can prosper long term
Celebrated International Women’s Day
32% of new hires at senior levels were female
Achieved the ‘Plus One’ commitment adding seven new female managers/leaders across the business
Focused external talent mapping and search activity for senior management specifi cally on female gender

This approach has fi ve key objectives which retain their alignment with DEXUS’s stakeholders: People, Community (incorporating suppliers), Environment, Customers, and introduces Cities as a new focus area.

These key objectives are explained in more detail, along with FY16 commitments for each of these objectives on pages 14–15.

Community

Enhanced the Group’s community involvement through the implementation of a new initiative, DEXUS Diamond Week, an employee volunteer effort which when combined with other activities raised funds towards a $27,950 donation to the Sydney Children’s Hospital Foundation

Facilitated events and fundraising activities in offi ce foyer areas and shopping centres which supported charities including Daffodil Day (Cancer Research & Prevention), The Sculptors Society (community arts organisation), Buffed (employment initiative), Pink Ribbon Day (Breast Cancer), and Musica Viva (Education)

Environment

Continued to expand and improve the accuracy of waste reporting across 94% of the Group’s offi ce and retail portfolios
Diverted 63% of waste from landfi ll for the Group’s offi ce portfolio, against the three year program target of 65% by FY16
Delivered absolute energy savings 10.4% across the Group’s likefor-like property portfolio, exceeding the three year program target of a 10% reduction by FY15
Implemented a new Environmental Reporting System
Streamlined data collection and payment processes to realise operating effi ciencies
Established two Regional Control Centres across 15 Sydney and Brisbane properties to centrally monitor heating, ventilation and air conditioning
Improved the average NABERS Energy rating across the DEXUS offi ce portfolio, including newly acquired properties to 4.7 stars
Improved the average NABERS Water rating across the DEXUS offi ce portfolio, including newly acquired properties to 3.8 stars

14 OVERVIEW FY16 COMMITMENTS

FY16 Commitments

DEXUS’s FY16 commitments refl ect DEXUS’s focus on responsible investment, spanning its sustainability approach.

DEXUS has set performance targets across the fi ve key objectives of its sustainability approach, with the overarching goal of delivering sustained value aligned with investor commitments. Through these commitments, DEXUS sets targets that are measurable, relevant, aspirational and achievable.

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To create sustained value by adopting an approach that embraces connectivity, liveability and resilience, and is integrated across our value chain.

Investors : Deliver FFO and distribution per security growth of 5.5–6.0%
Investors : Deliver a return on equity of 9-10%
Property portfolio : Maintain >95% occupancy in the DEXUS offi ce portfolio
Third party funds management : Continue to deliver on investment plans and objectives for third party partners
Trading : Progress the high priority opportunities in the trading pipeline

Preparing our customers for the future through enabling flexibility, productivity and growth.

Expand DEXUS’s online tenant portal to all of the Group’s offi ce properties, creating a virtual eco-system for networking and commerce
Enhance annual collection of customer loyalty metrics including tenant satisfaction, net promotion, incentive, tenant growth and retention to enable DEXUS to better meet its customers’ needs
Expand the state-of-the-art premium meeting, training and conference facilities, DEXUS Place, into two additional markets to empower customers to connect, collaborate and grow
Digitally enable DEXUS-managed retail centres to better engage with their customers and access data analytics to assist in understanding customer behaviours

Nurturing well-connected, prosperous and supported communities in and around our buildings.

Introduce a coordinated approach to community related services across the DEXUS offi ce platform through the development of a community engagement strategy and appointment of a new community manager role
Position DEXUS’s sub-regional shopping centres as community champions through the formation of partnerships with local schools, encouraging loyalty from this market segment while also providing valuable educational resources to participating schools
Improve the entertainment and leisure facilities at three DEXUS managed shopping centres to reaffi rm their position as community hubs
Implement procurement technology and annual surveys to enhance collaboration and knowledge exchange and create shared value with key suppliers

2015 DEXUS ANNUAL REVIEW 15

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Playing a leading role in shaping Australia’s cities for competitiveness and as desirable places to work and live.

Build collaborative partnerships through advocacy with city councils, planners and industry groups
Activate the ground fl oor plane of DEXUS’s offi ce properties, including the redevelopment of nine city retail areas, offi ce lobbies and laneways over the next three years, improving the permeability and vibrancy of these precincts
Deliver more than 5,000 square metres of public space through the completion of DEXUS offi ce developments in Sydney, Brisbane and Perth
Showcase the cultural heritage of the cities in which DEXUS operates through incorporating artworks and cultural programs in and around DEXUS’s offi ce properties
Partner with like-minded businesses to maximise latent vacancies in DEXUS’s car parks through adopting technological solutions and car sharing

Optimising the environmental performance and resilience of our buildings.

Deliver 1,000,000 square metres of offi ce space rated at least 5 Star NABERS Energy rating and 1,000,000 square metres rated at least 4 star NABERS Water rating by 2020
Reduce energy consumption and emissions across the Group by a further 10% by 2020 using the FY15 baseline including exploring opportunities for renewables
Consistently demonstrate a resource recovery rate of 80% from de-fi tting vacant space by 2020, actively identifying charities and markets for re-use, and increasing waste diversion from landfi ll
Implement a ‘Virtual Engineer’ program by applying 24/7 computer analytics to 36 sites to predict and react to Heating Ventilation and Air Conditioning (HVAC) events in real time
Review design briefs across all asset classes to develop an in-house suite of best practice sustainable development practices

Enhancing the well-being of our people and those in our properties.

Proactively manage workplace risks to ensure the safety and health of staff, customers and visitors
Build an inclusive and diverse culture through leadership, learning and diversity programs
Invest in the capability of leaders and managers to create a high performance culture
Develop a comprehensive approach to improve the health and well-being of employees
Support employees to enable a constructive, collaborative and supportive work environment through employee development programs, employee engagement initiatives, leadership development and culture building activities
Improve DEXUS’s employee value proposition to attract the right people to work, develop and retain at DEXUS

16 OVERVIEW MATERIAL ISSUES

Material Issues

DEXUS uses its material issues to help manage those aspects that are of interest for its key stakeholders and to shape its reporting suite to meet stakeholder expectations.

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11 Waymouth Street, Adelaide

This year, DEXUS reports on its material issues in accordance with Global Reporting Initiative (GRI) G4 requirements.

For further information on DEXUS’s approach to managing GRI G4 aspects and its material issues, refer to the 2015 GRI G4 Index and Performance Pack at www.dexus.com/crs

DEXUS’S MATERIALITY ASSESSMENT

DEXUS continuously seeks to improve the information it reports on, including reviewing materiality to ensure relevance. The previous formal review of material issues was undertaken in 2011, and DEXUS has conducted subsequent reviews of its commitments in 2012, 2013 and 2014 in line with its annual reporting disclosure.

In 2015, DEXUS developed a plan to transition from GRI G3.1 to the materialitybased GRI G4 framework. This involved an extensive review of DEXUS’s materiality for reporting in FY15 facilitated by an independent specialist.

There were four stages to this process:

1. Identify

2. Engage

DEXUS researched DEXUS engaged with existing and emerging key stakeholders to material issues relevant identify issues that they to its business, as considered important identifi ed by: to the Group. These � Local and included prioritising international bestissues relating to GRI practice peers G4 aspects as well as
� Investment bodies other issues identifi ed by stakeholders.
Investment bodies
Sustainability benchmarking tools
Industry associations

3. Prioritise

4. Disclose

To ensure an DEXUS has aligned appropriate level of with GRI G4 guidelines insight on priority, to ensure the DEXUS sought input structure and content from experts across of its FY15 annual the Group on the results reporting relative materiality of adequately disclosed the issues, prioritising materiality issues them based on their and performance. signifi cance and likely impact to DEXUS and its stakeholders. Refer to the DEXUS material matrix in the Performance Pack.

2015 DEXUS ANNUAL REVIEW 17

2015 GRI G4 MATERIALITY INDEX

DEXUS’s Top 10 material issues refl ect priorities for DEXUS’s stakeholders and its business, and align with the new reporting requirements under GRI G4 and DEXUS’s sustainability approach. The material issues are not prioritised, but organised under the key sustainability objectives below.

objectives below.

Material Issue	Approach	Sustainability objective	Section/document reference
Financial performance	Maintaining strong f nancial performance over the long term through delivering on strategy		Chair and CEO Review, Group Performance (Annual Review) Governance (Annual Report) Off ce, Industrial, Market Outlook (Annual Review)
Transparency	Promoting open communication with investors, supporting DEXUS’s strong governance principles
Market volatility	Adopting active leasing and asset management strategies to proactively address variable market conditions
Tenant attraction and retention	Enhancing tenant engagement and satisfaction and utilising leasing capabilities to attract and retain tenants in order to improve portfolio occupancy		Off ce, Industrial (Annual Review)
Talent attraction and retention	Attracting, retaining and developing employees to deliver high performance in a diverse and inclusive workplace		People and Culture (Annual Review) People and Culture (Annual Review), People and Culture – Disclosure of Management Approach (2015 Performance Pack)
Workplace health and safety	Ensuring the safety of employees, tenants and suppliers at DEXUS properties
Community contribution	Engaging with the community through corporate social responsibility programs and providing spaces servicing the wider community		People and Culture (Annual Review), Tenants and Customers Disclosure of Management Approach (2015 Performance Pack) 2015 Performance Pack
Sustainable procurement	Effectively managing supply chain risks in relation to environmental, social and governance issues and identifying opportunities to create value in partnership with suppliers
Climate change impacts	Assessing the impact and adopting measures to address the effect of climate change on the property portfolio		2015 Performance Pack Chair and CEO Review, Off ce, Industrial (Annual Review) 2015 Performance Pack
Resource ef ciency and waste	Improving energy and water eff ciency and waste management to enhance environmental outcomes, demonstrated through sustainability ratings

18 OVERVIEW GOVERNANCE

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DEXUS Funds Management Limited Board of Directors L:R Front: Elizabeth Alexander, Peter St George, Penny Bingham-Hall; Back: John Conde, Tonianne Dwyer, Craig Mitchell, Chris Beare, Darren Steinberg, Richard Sheppard

Governance

DEXUS views corporate governance as the foundation for long term success and the achievement of its strategy is underpinned by a strong governance platform.

2015 DEXUS ANNUAL REVIEW 19

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As DEXUS comprises four trusts, its corporate governance practices satisfy the requirements relevant to unit trusts. The Board has also determined that its governance framework meets the highest standards of a publicly listed company.

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COMMITMENT TO EXCELLENCE IN CORPORATE GOVERNANCE

DEXUS aspires to the highest standards of corporate governance and has embedded a set of well-defi ned policies and procedures to enhance corporate performance and protect the interests of key stakeholders.

DEXUS is committed to an open and transparent workplace that is free from corruption, bribery and discrimination. The Board implements a corporate governance framework which upholds standards on anti-corruption, anti-competitive behaviour, compliance, grievance mechanisms and diversity to ensure that DEXUS maintains market confi dence in its performance.

DEXUS’s corporate governance framework applies to all of the DEXUS Funds Management Limited funds, the DEXUS Wholesale Property Fund, capital partner investments and mandates. The framework has adopted the requirements of the ASX Corporate Governance Principles and Recommendations (Third Edition), and addresses additional aspects of governance which the Board considers important.

www.dexus.com/corporategovernance

MANAGING RISK

A prudent and robust approach to risk management is an essential part of DEXUS’s ongoing success.

The Group identifi es risk management as one of its key strategic objectives and continuously reviews and evaluates risk to ensure that it is appropriately managed at Board level through the Board Risk Committee, together with the Group Management Committee.

There are various risks that could impact the execution of DEXUS’s strategy and outlook, and the nature and potential impact of these risks can change over time. DEXUS actively reviews and manages risks faced by its business over the short, medium and long term, overseen by the Board Risk Committee. For further information on DEXUS’s risk management framework refer to the Review of Results and Operations and the Corporate Governance statement in the 2015 Annual Report.

ASX Corporate Governance Principles and recommendations	ASX Corporate Governance Principles and recommendations	DEXUS FY15 Annual Report
Principle 1	Lay solid foundations for management and oversight	Page 9
Principle 2	Structure of the Board to add value	Pages 9–13
Principle 3	Act ethically and responsibly	Pages 14–15
Principle 4	Safeguard integrity in corporate reporting	Page 15
Principle 5	Make timely and balanced disclosure	Page 16
Principle 6	Respect the rights of security holders	Page 16
Principle 7	Recognise and manage risk	Page 17
Principle 8	Remunerate fairly and responsibly	Page 17

20 OVERVIEW MARKET OUTLOOK

Market Outlook

Australian offi ce markets are showing signs of improvement, particularly on the east coast.

INVESTMENT CLIMATE

After subdued performance in FY15, the Australian economy is forecast to grow at a similar rate in FY16. The economies of New South Wales and Victoria, where the majority of DEXUS’s offi ce stock is located, are expected to outperform Queensland and Western Australia. While consumer confi dence remains subdued, positive business confi dence is expected to support a mild improvement in tenant demand in FY16. Rental growth prospects remain relatively subdued in FY16 due to the availability of new supply.

Market volatility associated with recent fi nancial instability in China and Greece is expected to have a limited impact on Australia’s real economy, with the Chinese slowdown already factored into forecasts. Low interest rates and the weaker Australian dollar are expected to continue to stimulate investment demand for quality Australian real estate.

OFFICE MARKETS

Australian offi ce markets are showing signs of improvement, particularly on the east coast. Lead indicators are pointing to a moderate uplift in absorption of space in FY16, with growth in space requirements led by the IT and professional services sectors, and smaller fi rms forecast to further expand across a range of sectors. Demand for high quality buildings is strengthening as a fl ight to quality is driving migration from lower grade properties.

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Improving demand will help offset signifi cant levels of new supply scheduled in FY16, with market vacancy rates on the east coast forecast to decline over the medium term. The short term outlook for rental growth remains subdued due to the availability of new supply.

SYDNEY CBD VACANCY FORECAST TO FALL TO 6.5% IN FY18

MARKET FACTORS AND ASSUMPTIONS

A recovery in offi ce tenant demand in the Sydney CBD is well underway and DEXUS Research forecasts this to remain solid in FY16

Sydney, North Sydney and Melbourne are expected to be the most appealing CBD offi ce markets for investment based on the prospect for improving fundamentals, however pricing remains tight making it diffi cult to secure opportunities which provide quality returns.

forecast net absorption of 80,000 square metres per annum over the next three years compares to 137,000 square metres in FY15
Post completion of Barangaroo in FY17, supply is expected to drop sharply in FY18

INDUSTRIAL MARKETS

forecast total supply of 444,000 square metres over the next three years, of which 57% is pre-committed

Tenant demand is relatively stable, driven by ongoing growth in key fundamentals including population growth, consumption and imports. Demand for quality stock is also supported by the optimisation of transport, logistics and retailer activity into effi cient functional premises. The vacancy cycle appears to be peaking across most markets, and vacancy rates in Outer West Sydney are the lowest in the country. It is expected that tenant demand will vary across states in FY16 due to the varied economic conditions in each market, with the outlook for New South Wales improving, Victoria stable and Queensland subdued.

forecast total withdrawals of 281,000 square metres, of which 42% are permanent withdrawals for alternate use

FORECAST OUTCOMES

Sydney CBD offi ce vacancy forecast to fall to 6.5% by FY18
Supply of competitively priced new stock will drive a signifi cant fl ight to quality that will boost prime take-up

Supply is expected to remain relatively steady and will be largely led by demand. Infrastructure development, urban activation and residential re-use will also be key factors in tightening supply in industrial markets in fringe CBD and port precincts.

In the short term, the weight of capital seeking to invest in industrial markets, coupled with the limited supply of quality investment stock, is expected to continue to drive value growth for properties with secure income streams.

2015 DEXUS ANNUAL REVIEW 21

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SYDNEY
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SYDNEY CBD 12 MONTH OUTLOOK

50[%]

OF DEXUS OFFICE PORTFOLIO

The outlook for the Sydney CBD looks favourable over the medium to long term. Tenant demand is expected to remain fi rmly positive in FY16 and FY17, but the addition of signifi cant levels of new supply including the Barangaroo precinct, will keep vacancy rates temporarily elevated and rents relatively fl at in FY16. Positive demand and the withdrawal of older stock are anticipated to drive down vacancy levels towards 6.5% from FY17, providing scope for rental growth in the medium term.

Vacancy	Incentives
Rents	Yields

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BRISBANE
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BRISBANE CBD 12 MONTH OUTLOOK

12[%]

OF DEXUS OFFICE PORTFOLIO[1]

The outlook for Brisbane CBD is mixed with demand improving and rents fl at in the short term. Government and mining sector consolidation has tapered and demand turned a corner in FY15, recording positive net absorption. Brisbane remains a two-tier market with prime vacancy sitting well below secondary as tenants migrate to high quality space. New supply is expected to keep vacancy elevated in FY16, however Brisbane should benefi t from signifi cant stock withdrawals in FY16 and FY17 for residential conversion.

Vacancy	Incentives
Rents	Yields

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MELBOURNE
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MELBOURNE CBD 12 MONTH OUTLOOK

14[%]

OF DEXUS OFFICE PORTFOLIO

The outlook for the Melbourne CBD offi ce market is expected to improve in FY16. Tenant demand is anticipated to strengthen in FY16, primarily due to growth in the education and professional services sectors. Combined with muted supply, the increase in tenant demand is expected to drive a reduction in vacancy rates to below 10%. This will be assisted by continued tenant migration from the fringe to the CBD. Incentives are expected to remain high over the next 12 months, holding back effective rental growth until late FY16.

Vacancy	Incentives
Rents	Yields

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PERTH
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PERTH CBD 12 MONTH OUTLOOK

10[%]

OF DEXUS OFFICE PORTFOLIO

The slowdown in the Perth CBD offi ce market is expected to continue in FY16 as the mining sector transitions from investment phase to production. Signifi cant supply will enter the market in FY16 and, with further cutbacks in the mining sector, is expected to drive vacancy levels and incentives higher. Rental levels are also expected to weaken further. While cyclically slow, Perth’s longer term prospects are underpinned by rising export volumes.

Vacancy	Incentives
Rents	Yields

DEXUS’s exposure to the Brisbane offi ce market is expected to increase to 15.6% post the acquisition of Waterfront Place Complex which is due to settle in October 2015.

22 PERFORMANCE GROUP PERFORMANCE

Group Performance

DEXUS achieved or exceeded all of its fi nancial objectives through additional income from the DEXUS Offi ce Partnership properties, increased management operations income and trading profi ts.

DEXUS delivered FFO per security of 59.5 cents and distribution per security of 41.04 cents in FY15, both up 9.3% on the prior year and in line with upgraded guidance provided at the HY15 result. Primary contributors to the strong fi nancial result were:

$67.4 million increase in Total Property FFO driven by the additional DEXUS Offi ce Partnership properties. In addition, offi ce portfolio occupancy improved slightly from 94.6% at 30 June 2014 to 95.3% at 30 June 2015
$10.0 million increase in Management operations income, also driven by the additional CPA properties as well as 10% growth in third party funds under management over the year
Trading profi ts of $42.6 million (net of tax) realised on fi ve trading properties

This fi nancial result was achieved while DEXUS maintained a strong balance sheet, with look-through gearing of 28.5% at 30 June 2015 after undertaking a $478 million equity raising in April 2015.

Statutory net profi t after tax was $618.7 million, an increase of $212.1 million from FY14. This movement was driven primarily by:

FFO increased by $97.9 million
Net revaluation gains on investment properties of $241.0 million, representing a 2.6% uplift across the portfolio, were $75.5 million higher than the prior year gains
The FY14 Statutory Net Profi t was reduced by costs of $76.7 million relating to the CPA transaction which completed in April 2014

Investment property revaluations gains were the primary driver of the 5% or 32 cent increase in Net Tangible Assets per security to $6.68, refl ecting the contribution of leasing success on capital values and capitalisation rate compression at properties with strong tenant covenants.

The Group delivered a Return On Equity[1] for the 12 months to 30 June 2015 of 11.5%, above the 9–10% per annum target through the cycle and ahead of the prior year which was impacted by the CPA transaction.

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5 Martin Place, Sydney

2015 DEXUS ANNUAL REVIEW 23

STATUTORY NET PROFIT $ 618.7m

GEARING 28.5[%]

NET TANGIBLE ASSETS PER SECURITY

$6.68

The following table provides a summary of the key components of FFO and AFFO based on the information provided in Group Performance note 1. Operating Segments in the Annual Report.

	30 June 2015 $m	30 June 2014 $m
Off ce Property FFO	533.3	455.4
Industrial Property FFO	112.3	122.8
Total Property FFO	645.6	578.2
Management operations	37.9	27.9
Group corporate	(30.4)	(27.5)
Net f nance costs	(150.8)	(139.4)
Other2	(0.4)	3.1
Underlying FFO3	501.9	442.3
Trading prof ts (net of tax)4	42.6	4.3
FFO5	544.5	446.6
Adjusted FFO5	369.8	310.7

MAINTAINING A STRONG BALANCE SHEET

The strength of DEXUS’s balance sheet was enhanced through an equity raising in April 2015 which included a $400 million institutional placement and a further $77.8 million raised through a Security Purchase Plan for eligible security holders. This equity raising enabled DEXUS to pursue compelling acquisition opportunities while maintaining low gearing.

DEXUS’s gearing[6] of 28.5% at 30 June 2015 will increase to approximately 29.3% post the receipt of proceeds from the divestment of the Rosebery and Mascot trading properties and the acquisition of the Waterfront Place Complex which is expected to settle in October 2015.

DEXUS undertook a number of other capital management activities during the year including:

Raised $250 million through a US Private Placement issue during the year, increasing the weighted average debt duration to 5.7 years at 30 June 2015
Announced an on market securities buyback on 14 October 2014. The buy-back is yet to be utilised and was suspended on 21 April 2015 as a consequence of the announcement of an equity raising
Implemented a one-for-six security consolidation in November 2014 which reduced the total number of securities on issue

FY16 GUIDANCE

Barring unforeseen changes to operating conditions, DEXUS’s guidance[7] for the 12 months ending 30 June 2016 is for:

FFO per security growth of 5.5-6.0%, with FFO from the underlying business (excluding trading profi ts net of tax) expected to grow by 3.0-3.5%
Distribution payout in line with free cash fl ow to deliver growth in distribution per security of 5.5-6.0%
Achieved a reduction in the overall cost of debt of 20 basis points in FY15 to 5.2%, which was supported by credit rating upgrades in late FY14
Return on Equity is calculated as the growth in NTA per security plus the distribution paid/payable per security divided by the opening NTA per security.
Other income includes Development Management fees. 3. Underlying FFO excludes trading profi ts (net of tax). 4. Trading profi ts generated less FFO tax expense recognised for Rosebery in the year.
FFO and AFFO are in line with Property Council of Australia defi nitions.
Gearing is adjusted for cash and debt in equity accounted investments.
Barring unforeseen circumstances guidance is supported by the following assumptions: fl at like-for-like income across the DEXUS combined portfolio, weighted average cost of debt of circa 4.9%, trading profi ts of approximately $60m net of tax, Management Operations FFO of $45-50m (including third party development management fees), approximately $150m net proceeds from non-core property divestments during FY16, excluding any buy-back of DEXUS securities, and excluding any further transactions.

24 PERFORMANCE

DEXUS PROPERTY PORTFOLIO / OFFICE

Offi ce

DEXUS improved occupancy and maximised cash fl ows in its offi ce portfolio by capturing demand from diverse tenant groups and increasing the number of eff ective leasing deals.

ONE YEAR TOTAL RETURN

9.6[%]

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IMAGES CLOCKWISE

10 Eagle and 12 Creek Street, Brisbane 1 Bligh Street, Sydney 45 Clarence Street, Sydney

2015 DEXUS ANNUAL REVIEW 25

OFFICE SPACE LEASED[1]

211,071sqm

OCCUPANCY BY INCOME

95.3[%]

RETENTION

61[%]

RETENTION 61%
Key metrics	FY15	FY14	FY13	FY12	FY11
Portfolio value ($bn)	7.8	7.7	5.7	4.7	4.5
Total properties	49	53	36	28	28
Net lettable area (sqm)	1,403,255	1,490,070	951,380	759,737	760,990
Like-for-like income growth (%)	0.2	3.61	1.8	5.4	3.3
Occupancy by income (%)	95.3	94.6	94.6	96.8	95.3
Occupancy by area (%)	95.5	94.3	94.4	97.1	96.2
Portfolio WALE by income (years)	4.3	4.7	5.0	4.9	5.3
Tenant retention (%)	61	611	72	66	53
Weighted average capitalisation rate (%)	6.71	6.871	7.17	7.30	7.4
1 year total return (%)	9.6	9.21	10.6	9.5	9.0

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----- Start of picture text -----

Sydney Adelaide
61% 2%
Melbourne Canberra
14% 1%
Brisbane Perth
12% 10%
$
7.8 bn
DEXUS Office
----- End of picture text -----

OVERVIEW – AUSTRALIAN OFFICE MARKETS

Net absorption for CBD offi ce space located on the east coast of Australia reached a four-year high during the year. Up to 30 June 2015, Sydney had posted positive net absorption for six consecutive quarters, with Melbourne close behind at fi ve consecutive quarters. Brisbane net absorption turned positive in the March 2015 quarter.

Lower interest rates are stimulating small business activity and investment fl ows into the domestic economy are driving increased demand from fi nancial services and wealth management fi rms. Other industries experiencing growth in the DEXUS portfolio, including business services, public administration and tier two legal fi rms, continued to drive demand in Sydney and Melbourne.

There are also signs of increased uptake of offi ce space by technology fi rms in the Sydney CBD which are migrating into the city from their traditional CBD fringe locations. These fi rms are seeking to appeal to top talent who are attracted to CBD locations offering more amenity and less travel time. Melbourne is experiencing a similar pattern with fi rms from various industries located in fringe markets choosing to move to the CBD. Perth remains the most challenging offi ce market as a result of the reduction in mining investment.

Incentives are generally trending down in Sydney as a result of the improved demand dynamics although remain high for some properties with leasing challenges.

Excluding DEXUS Offi ce Partnership properties.

26 PERFORMANCE DEXUS PROPERTY PORTFOLIO / OFFICE

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60 Castlereagh Street, Sydney

LEASING STRATEGY TO MAXIMISE INCOME AND REDUCE INCENTIVES

Continued positive leasing momentum for space in core A-grade properties in Sydney and Melbourne has driven leasing volumes across DEXUS’s offi ce portfolio.

There were a number of instances during the year where multiple tenants competed for the same space, resulting in better leasing outcomes. A combination of fi rmer tenant demand and increased acceptance of effective deal structures allowed DEXUS to maintain its focus on reducing incentives, achieving average incentives of 15.0% across the portfolio (FY14: 18.6%).

Driving the performance of the portfolio, DEXUS leased[1] 211,071 square metres of offi ce space in FY15 (FY14: 174,109 square metres) across 303 transactions, representing 15% of the portfolio. Despite tenant retention of 61%, DEXUS successfully re-leased 51% of the area vacated during the year, with average downtime of only four months.

By undertaking a speculative fi tout ahead of leasing the space, DEXUS is able to minimise downtime and leverage its economies of scale to procure workspace fi touts at a competitive rate, benefi ting income and cash fl ows.

Key leasing successes included:

Renewing Commonwealth Bank of Australia across 21,964 square metres at 150 George Street, Parramatta

DEXUS signed 275 leases across 98,340 square metres with tenants for spaces less than 1,500 square metres representing 47% of all leasing undertaken by area. While these leases are typically three to four years in length, they offer the opportunity for DEXUS to reset rents and customers to grow space in the medium term when the market is expected to improve. As these smaller sized tenants grow, there is also the opportunity to accommodate their growth within the DEXUS portfolio.

Renewing the State Government of NSW across 13,662 square metres at 14 Lee Street, Sydney
Signing Commonwealth Government across 12,273 square metres at 130 George Street, Parramatta
Signing 13 new tenants across 10,758 square metres at 45 Clarence Street, Sydney which is now 89% occupied

60 CASTLEREAGH STREET, SYDNEY — THINKING CREATIVELY TO LEASE SPACE

DEXUS APPROACH

60 Castlereagh Street, Sydney was acquired in April 2014 as part of the CPA transaction
The property faced limited leasing enquiry on the lower offi ce fl oors, which had been mostly vacant for over three years due to a lack of natural light and poor fl oor confi guration
Identifi ed an opportunity to create direct stair access to Level 1 to enhance the appeal of the property to a new category of prospective tenants
Adopted a fi tted suites offering for Level 15

VALUE CREATED

Secured a number of new tenants including:
The University of Newcastle over Level 1 and part Level 2 across 2,900 square metres, as a result of the installation of new stairs
SAI Global Property Division across the whole of Level 3
two new tenants across the entire fl oor of Level 15
Improved occupancy from 94.0% at acquisition to 100% at 30 June 2015
Increased WALE from 4.5 years to 5.5 years
Achieved one year total return of 12.3% and value uplift of $17.3 million
Including Heads of Agreement.

2015 DEXUS ANNUAL REVIEW 27

DEXUS continued to roll out its fi tted suites off ering across a number of properties to capture the demand from small and medium sized businesses.

AVERAGE NABERS ENERGY RATING

4.7stars

OFFICE CUSTOMER SATISFACTION SCORE OF

8/10

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Office lease expiry profile
(by income)
20.0%
10.8
10.4
7.5 12.7%
9.7% 9.8%
4.8 8.8% 8.4%
4.7%
Available FY16 FY17 FY18 FY19 FY20 FY21
----- End of picture text -----

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Leasing history by size of tenant
1,500+ 250 -749
750-1,499 0-249
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Premium Grade
1,500+ 250 -749 31%
A-Grade
750-1,499 0-249 55%
Land & Developments
211,071 6%
B-Grade
186,379 4%
Office & Business parks
154,321 2%
Car parks
2%
$7.8 bn
DEXUS Office
FY13 FY14 FY15
----- End of picture text -----

ACHIEVING CUSTOMER SATISFACTION THROUGH AN ENHANCED CUSTOMER EXPERIENCE

DEXUS maintained a satisfaction with service score of 8 out of 10 in its FY15 tenant survey across the Group’s offi ce portfolio.

DEXUS APPROACH

Tenants have benefi ted through a number of initiatives including upgrades to endof-trip facilities at properties in Sydney, Melbourne and Brisbane, as well as the continued rollout of PLATFORM by DEXUS which provides new and refreshing ways to engage customers in the foyers of offi ce buildings.

VALUE CREATED

In line with its FY15 commitment to implement initiatives to enhance the customer experience, DEXUS introduced a number of new products that enhance its customer service offering. These included:
DEXUS Place – a premium meeting, training and conference facility that provides customer workplace solutions (refer to the case study on page 28)
DEXUS Diners Card – a charge card that provides a rental payment option for customers with the benefi t of earning reward points on their rental payments
Australia Post parcel lockers – introduced to a number of properties making online shopping more convenient
Divvy – a new car parking technology solution that connects commuters in the area to under utilised spaces
GoGet – a national partnership to provide GoGet car sharing cars to customers in selected DEXUS buildings

28 PERFORMANCE DEXUS PROPERTY PORTFOLIO / OFFICE

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ENHANCING THE CUSTOMER EXPERIENCE WITH LAUNCH OF DEXUS PLACE

Located at One Margaret Street, Sydney, DEXUS Place is an intelligently-designed, premium meeting, training and conference facility with the latest collaborative technology.

DEXUS APPROACH

DEXUS undertook extensive market research which revealed that 70% of its customers experience a shortage of meeting and training rooms
DEXUS collaborated with experts in workspace design and technology to design a purpose-built facility with every aspect responding to the expectations of customers
The facility provides video conferencing facilities, an auditorium which connects businesses with their whole company for ‘town halls’ and a 21 seat RealPresence Immersive Studio provided by Polycom, the largest of its kind in the Southern Hemisphere

VALUE CREATED

DEXUS used its understanding of work trends, listened to its customers and utilised its property expertise to create a product that is specifi cally tailored to meet the need for businesses to have access to quality workspaces
DEXUS intends to roll out a suite of facilities in prime CBD locations around Australia, with the second DEXUS Place location to be launched at 385 Bourke Street, Melbourne in October 2015
With the launch of these new facilities DEXUS can now provide workplace solutions for customers from one hour to 10 years

Collaborative and break out area, meeting rooms and the RealPresence Immersive Studio at DEXUS Place

2015 DEXUS ANNUAL REVIEW 29

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One Farrer Place, Sydney

IMPROVING OPERATIONAL PERFORMANCE

DEXUS achieved occupancy of 95.3% at 30 June 2015 (FY14: 94.6%), delivering on the ‘above 95%’ target set at the start of the year. As a consequence, a number of properties in the Sydney portfolio are now 100% occupied, including 383 Kent Street, 60 Castlereagh Street, 175 Pitt Street and One Margaret Street.

FY16 expiries reduced to 8.8% from 10.6% at FY14, while FY17 expiries increased to 12.7% from 11.9% at FY14 primarily impacted by short term leasing deals undertaken during the year. Portfolio WALE reduced from 4.7 years to 4.3 years. Given expectations for continued improvement in leasing markets, DEXUS is comfortable with this lease expiry profi le.

Offi ce FFO of $533.3 million refl ected an increase of 17% on FY14. This growth was underpinned by 0.2% growth in like-forlike income together with a full 12-month income contribution from the DEXUS Offi ce Partnership properties.

DEXUS’s offi ce portfolio delivered a one-year total return of 9.6% (FY14: 9.2%) driven by a strong revaluation uplift across the DEXUS Offi ce Partnership properties, partially offset by a reduction in the valuation of 240 St Georges Terrace in Perth.

The continued trend of good leasing outcomes, the weight of capital seeking quality offi ce property and strong tenant covenants all contributed to a $213.5 million or 2.8% increase in valuations on prior book values across the DEXUS offi ce portfolio.

The offi ce portfolio weighted average capitalisation rate tightened by 16 basis points, from 6.87%[1] at 30 June 2014 to 6.71% at 30 June 2015.

STRUCTURED DE-FIT OF GOVERNOR MACQUARIE TOWER[1]

DEXUS APPROACH

DEXUS identifi ed an opportunity to maximise resource recovery from offi ce refurbishment
Collaborated with Edge Environment and Better Buildings Partnership (BBP) to facilitate the diversion of de-fi t waste from Governor Macquarie Tower at 1 Farrer Place, Sydney
Removed materials through cost-effective, structured demolition streams and sorted recycling on site

VALUE CREATED

Recovered and re-purposed 8.5 tonnes of furniture to charitable organisations, enabling productive and creative workspaces
Recycled materials including glass into higher value glass fi bre insulation and gypsum plasterboard to calcium and sulphur for farming applications
Captured and diverted materials from landfi ll, achieving an overall waste diversion rate of 61% with no additional costs
Co-owned by DEXUS, GPT Group and Lend Lease founding members of BBP, and managed by DEXUS.

1 Excluding DEXUS Offi ce Partnership properties.

30 PERFORMANCE DEXUS PROPERTY PORTFOLIO / OFFICE

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150 George Street, Parramatta

TRANSACTIONS

In June 2015, DEXUS and DWPF announced that they had reached a conditional agreement to jointly (50/50) acquire Waterfront Place and Eagle Street Pier located within the prime commercial precinct of the Brisbane CBD known as the “Golden Triangle” for $635 million, refl ecting a capitalisation rate of 6.9%. The property is an excellent long term core investment, and Eagle Street Pier offers one of the best future development sites in the Brisbane CBD. The acquisition is expected to settle on or around 1 October 2015 and increases DEXUS’s weighting to the Brisbane CBD offi ce market from 12% to 16%.

DEXUS settled on the sale of its remaining offshore property, the Lumley Centre in Auckland, for NZ$146.0 million in November 2014 following improvements in the property’s fundamentals including occupancy and weighted average lease expiry.

DEXUS was also successful in selling a number of offi ce properties that form a part of its trading book during FY15, which are discussed in further detail in the Trading section on pages 42–43 of this report.

SUSTAINABILITY PERFORMANCE

Continuing its commitment to improving the sustainability of its offi ce properties, DEXUS achieved an average 4.7 star NABERS Energy rating across the DEXUS offi ce portfolio, including newly acquired properties (FY14: 4.6 star). DEXUS achieved an average 3.8 star NABERS Water rating across the offi ce portfolio, including newly acquired properties (FY14: 3.5 star).

DEXUS continued to expand waste reporting across the offi ce and retail portfolios, progressing towards its target 65% diversion from landfi ll for the Group’s offi ce portfolio by the end of the three year program in FY16.

New Environmental Reporting systems were implemented across the Group’s portfolio providing visibility over data and enhancing the ability to analyse consumption trends. Regional control centres were also established to centrally monitor and optimise heating, ventilation and air conditioning operations to reduce energy and maintenance costs at properties in the Sydney and Brisbane portfolios.

IMPROVING ENERGY EFFICIENCY THROUGH ACTIVE OPERATIONAL MANAGEMENT

DEXUS APPROACH

DEXUS acquired 150 George Street, Parramatta in April 2014 as part of the CPA transaction
Acted on data generated from the analytics tool, implementing effi ciency initiatives at the property including:
optimising air pressures in variable fl ow systems
cooling tower and chiller staging optimisation
strategies to maximise performance during extended working hours

VALUE CREATED

Identifi ed $25,000 of cost savings to date, including energy savings and cost effi ciencies
Successful piloting of the analytics tool at 150 George Street is expected to be rolled out across a further 36 DEXUS properties over the next 12 months

2015 DEXUS ANNUAL REVIEW 31

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145 Ann Street, Brisbane

RESOURCE RECYCLING & REUSE — 145 ANN STREET, BRISBANE

DEXUS APPROACH

DEXUS is applying water treatment technology to recycle water at 145 Ann Street, Brisbane
Grey water is collected from the building’s showers and hand basins and recycled in a treatment plant for reuse in selected services including:
WC cisterns and urinals
irrigation
plant room and cooling towers
car park and basement grease trap area

VALUE CREATED

Recovered and reused more than 9,700 kilolitres since 2013 averaging
10.6 kilolitres of recycled water per day

INNOVATING TO ENHANCE PROPERTY SERVICES

DEXUS APPROACH

DEXUS identifi ed an opportunity to offer managed utilities services to tenants at attractive rates via an embedded electricity service at 44 Market Street, Sydney
Offered existing tenants the opportunity for DEXUS to facilitate their electricity supply
Established a seamless connection process for new tenants

FY16 FOCUS

VALUE CREATED

ENERGY WATER GHG INTENSITY INTENSITY EMISSIONS

39.9[%] 27.9[%] 42.6[%]

SINCE BASE YEAR FY08

Maintain >95% occupancy in the DEXUS offi ce portfolio
Reduce the FY17 DEXUS offi ce portfolio lease expiries to 10%
Target fl at like-for-like income growth across the DEXUS combined portfolio
Continue to reduce incentives and undertake effective leasing deals
Signed up 90% of existing tenants at 44 Market Street, Sydney to the embedded electricity service
Provided an additional property income stream of $160,000 per annum
Achieved cost savings of approx. $110,000 per annum to tenants
Exploring the potential to extend the program to a further fi ve offi ce properties

32 PERFORMANCE

DEXUS PROPERTY PORTFOLIO / INDUSTRIAL

Industrial

Actively pursuing all operational targets, DEXUS achieved an increased industrial portfolio total return.

INDUSTRIAL SPACE LEASED[1] 183,062sqm

LEASES SECURED 75

RETENTION 53[%]

ONE YEAR TOTAL RETURN 11.3[%]

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QUARRY AT GREYSTANES RECOGNISED FOR INNOVATION AND EXCELLENCE

Sydney 61% Melbourne 33% Brisbane 4% Adelaide 2%

DEXUS’s Quarry at Greystanes development was awarded Best Industrial Park at the 2015 Property Council of Australia Rider Levitt Bucknell Innovation & Excellence Awards.

Quarry at Greystanes is strategically located with direct access to key road networks and has set new benchmarks in innovative design and sustainability.

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----- Start of picture text -----

$
1.7 bn
DEXUS
Industrial
----- End of picture text -----

The estate, which is 98% occupied and due for completion this year, has attracted a community of diverse high calibre tenants who have seen the benefi t of locating their business to a unique location with long term benefi ts.

On completion, the estate will comprise 16 pre-lease and speculative industrial facilities valued at over $280 million across approximately 168,000 square metres.

2015 DEXUS ANNUAL REVIEW 33

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Quarry at Greystanes 1 Basalt Road, Greystanes

OVERVIEW – AUSTRALIAN INDUSTRIAL MARKETS

Low interest rates are boosting businesses supported by housing construction and infrastructure projects which is translating into demand for functional industrial facilities aligned to key transport corridors. An increase in retail spending has driven Sydney Port volumes up 3.0% year-on-year, which is translating to demand from the general merchandise retail sector for industrial space. Interestingly, DEXUS has witnessed a trend whereby some wholesale retailers are choosing to lease their own warehouse premises directly rather than utilise the space of third party logistics providers.

With the increasing conversion of South Sydney and Inner West industrial sites into residential and mixed uses, the central and outer western Sydney markets are benefi ting from increased demand.

This demand is driven from a wide user category seeking to be centrally located within the Sydney metropolitan area and in proximity to major arterial roads.

With supply being withdrawn for alternate uses where users are being displaced (particularly within the South Sydney ports precincts) we are in advanced discussions with numerous potential tenants for our prime grade facility at Matraville, one of the only large scale opportunities within the strategic port precinct.

OPERATIONAL PERFORMANCE

During the year, DEXUS leased[1] 183,062 square metres of industrial space (FY14: 139,716 square metres) across 75 transactions including 44 leases with new tenants. Tenant retention also improved to 53% from 41% during FY14. Average incentives decreased slightly to 10.8% (FY14:11.0%).

Key leasing successes included:

Securing a lease with Kathmandu across 25,650 square metres to develop a new facility at DEXUS Industrial Estate, Laverton North
Securing Bevchain across 22,924 square metres at 15-23 Whicker Road, Gillman
Securing leasing of 21,795 square metres in total across 46 tenants at AXXESS Corporate Park, Mount Waverley

Portfolio WALE remained steady at 4.0 years. DEXUS’s industrial portfolio occupancy reduced to 92.4% from 93% at 30 June 2014, driven by an increase in vacancy at large scale facilities including Matraville, Flemington and Dandenong. DEXUS expects an improvement in industrial occupancy over the next six months driven by further leasing at properties such as Dandenong which secured a new 10,612 square metre tenant and has 10,920 square metres remaining to lease.

1 Including Heads of Agreement.

34 PERFORMANCE DEXUS PROPERTY PORTFOLIO / INDUSTRIAL

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Quarry at Greystanes 2 Basalt Road, Greystanes

Key metrics	FY15	FY14	FY13	FY12	FY11
Portfolio value ($bn)	1.7	1.4	1.6	1.7	1.6
Total properties	53	50	48	45	35
Gross lettable area (sqm)	1,294,735	1,254,588	1,251,152	1,239,101	1,146,778
Like-for-like income growth (%)	0.7	1.5	1.1	(1.6)	1.1
Occupancy by income (%)	92.4	93.0	96.1	92.8	95.1
Occupancy by area (%)	91.7	93.1	95.9	91.7	96.2
Tenant retention (%)	53	41	70	59	61
Portfolio WALE by income (years)	4.0	4.0	4.1	4.4	4.7
Weighted average capitalisation rate (%)	7.77	8.32	8.55	8.59	8.6
1 year total return (%)	11.3	9.0	8.8	8.0	9.4

INDUSTRIAL CUSTOMER SATISFACTION SCORE OF 7.4/10

ACQUIRED LAKES BUSINESS PARK, BOTANY FOR $ 153.5m

DEXUS’s industrial portfolio delivered a one-year total return of 11.3% (FY14: 9.0%) driven by underlying property income and improved property values.

Industrial property FFO of $112.3 million was down 8.6% on FY14 primarily as a result of divestments and lower occupancy at properties such as Rosebery. Like-for-like income growth was 0.7%, driven by fi xed increases across the portfolio, leasing at 15-23 Whicker Road, Gillman and 30 Bellrick Street, Acacia Ridge, offset by vacancy at Dandenong. DEXUS’s industrial portfolio however remains 6.9% over-rented.

Revaluations across the DEXUS industrial portfolio at 30 June 2015 resulted in a marginal uplift of $27.5 million or 1.6% increase on prior book values, driven by a combination of income growth and capitalisation rate compression. Well leased industrial properties were the primary contributors to the fi rming in capitalisation rates.

TRANSACTIONS

DEXUS acquired Lakes Business Park, Botany for $153.5 million, investing in one of DEXUS’s core industrial markets. The property has the potential for superior rental growth in the medium term due to the lack of greenfi eld land options, combined with competing land use opportunities in the South Sydney market.

During the year, DEXUS sold 30 Distribution Drive, Laverton North from its trading book, discussed in the ‘Trading’ section on pages 42–43 of this report.

The recognition of trading profi ts at Rosebery and Mascot, demonstrates DEXUS’s ability to unlock highest and best use opportunities.

2015 DEXUS ANNUAL REVIEW 35

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Lakes Business Park, Botany

CUSTOMER ENGAGEMENT

DEXUS achieved a satisfaction with service score of 7.4 out of 10 in its FY15 tenant survey across the Group’s industrial portfolio, assisted by DEXUS’s customer service approach together with the benefi ts of scale delivered through the Group’s substantial industry leading procurement platform.

SUSTAINABILITY PERFORMANCE

DEXUS continued to embed sustainability practices within industrial estate master planning for new developments and through targeted technology and controls upgrades. Master planning initiatives aim to reduce water and energy use including the use of solar hot water, rainwater for irrigation and toilets use and native landscaping.

During the year DEXUS completed several air conditioning system upgrades across the industrial portfolio, including 40 Lord Street Botany and 12 Frederick Street St Leonards. Aging, ineffi cient package units, chillers and associated controls were replaced with new high effi ciency technology.

DEXUS also continued to upgrade lighting systems to high effi ciency LED or T5 fl uorescent fi xtures including retrofi ts to exit and emergency lighting. Lighting upgrades at Axxess Corporate Park, Mount Waverley will save 26MWh in energy, reduce carbon emissions by 31 tonnes and achieve over $4,000 in annual energy savings with a payback of less than four years.

ENERGY WATER GHG INTENSITY INTENSITY[1] EMISSIONS

28.9[%] 19.3[%] 34.3[%]

SINCE BASE YEAR FY08

Water consumption is primarily under the control of tenants, with the increase in FY15 due to tenant demand for water at Kings Park Industrial Estate, NSW.

FY16 FOCUS

Active asset management of the industrial portfolio to deliver attractive income returns
Pursuing non-core divestments and/or change of use repositioning opportunities within the existing portfolio
Developing core new industrial product and pursuing core plus acquisition opportunities for DEXUS and its third party partners

ACQUISITION SATISFIES DUAL STRATEGY OF TRADING AND LEASING

Lakes Business Park is a 43,000 square metre business park located in close proximity to Sydney Airport and eight kilometres from the Sydney CBD in a core industrial market for DEXUS. The property comprises two adjoining sites – the Northern site and the Southern site and is adjacent to Sir Joseph Banks Corporate Park which is owned by DWPF.

DEXUS APPROACH

DEXUS acquired Lakes Business Park in January 2015
Identifi ed the potential for superior rental growth in the medium term due to constrained supply and competing land use interests in the South Sydney market
active leasing strategy to drive rental growth and increase WALE of Northern site
medium-term potential for residential re-zoning of Southern site – acquired as part of inventory for future trading opportunity and held in trading trust

VALUE CREATED

Accessed quality industrial product close to Sydney Airport and the CBD that will benefi t from increased demand from displaced tenants in the inner South Sydney region
Discussions have commenced with local planning authorities regarding the rezoning of the Southern site

36 PERFORMANCE DEXUS PROPERTY PORTFOLIO / DEVELOPMENT

Development

DEXUS continued to enhance future investor returns through progressing its $1.2 billion development pipeline, with two key offi ce projects nearing completion.

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IMAGES CLOCKWISE 5 Martin Place, Sydney Quarry at Greystanes Kings Square, Perth

CREATING VALUE THROUGH DEVELOPMENT

DEXUS utilises its development expertise and leverages its portfolio scale to deliver bestin-class offi ce buildings and prime industrial facilities, improving portfolio quality and enhancing investor returns. For developments undertaken on behalf of third party parties, DEXUS earns development management fees and is able to deliver on third party funds/ partner strategies.

DEXUS allocates up to 15% of Funds Under Management (FUM) across its direct property portfolio to development and value-add or trading activities. Currently representing 6.5% of FUM, these activities are focused on providing earnings accretion and enhancing total return. Refer to Trading on pages 42–43 for further information on trading activities.

GROUP DEVELOPMENT PIPELINE

Over the year the Group development pipeline grew to $3.5 billion, of which the DEXUS portfolio accounts for $1.2 billion. A signifi cant proportion of the $2.3 billion Third Party development pipeline comprises properties owned in joint venture with DEXUS (refer to the Third Party Funds Management section on pages 38–41).

5 MARTIN PLACE, SYDNEY – ASHURST MOVES IN

The fi rst stage of the 5 Martin Place, Sydney development reached practical completion on 30 June 2015, with Ashurst moving into levels 5-11 across 12,644 square metres in July 2015.

5 Martin Place achieved a 5 Star Green Star design rating during the year. On fi nal completion, the building will provide 33,500 square metres of premium grade space, prominently located in the centre of the Sydney CBD in a precinct that is undergoing a revival. The development incorporates one of Sydney’s most recognisable and respected sandstone buildings, featuring two distinct areas – the heritage-listed “money box” with a large light fi lled centre atrium, and the new and modern tower fl oors. A rejuvenated laneway adjacent to the building brings a lively and engaging appeal to the wider Martin Place precinct.

The offi ce space at 5 Martin Place is now 82% committed after Challenger and Evans & Partners were secured during the year, with completion due in September 2015.

KINGS SQUARE, PERTH – NEARING COMPLETION

Two of the three towers at Kings Square, Perth were completed, with Shell to fully occupy one of the towers as its new corporate headquarters, and the remaining tower expected to be completed in September 2015. All three towers achieved a 5 star Green Star design rating during the year. Upon full completion, Kings Square will deliver affordable prime grade space spanning more than 52,700 square metres in an emerging urban renewal precinct. A rental guarantee secured at the time of acquisition ensures full income on the properties for a further fi ve years from practical completion, with the offi ce space currently 55% committed.

2015 DEXUS ANNUAL REVIEW 37

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----- Start of picture text -----

GROUP DEVELOPMENT PIPELINE
$3.5bn
----- End of picture text -----

DEXUS PORTFOLIO$1.2bn THIRD PARTY FUNDS Committed projects $808m Uncommitted projects $2.3bn Committed projects remaining spend $296m $420m FY16 FY17 FY18[+] 5 Martin Place, Sydney | $111m[1,2 ] ($9m) 480 Queen Street, Brisbane | $288m[1] ($128m) Kings Square, Perth | $213m[1,2] ($42m) Quarrywest at Greystanes | $96m[1] ($56m) Quarry at Greystanes[3] | $12m ($5m) $26m ($26m) Radius Industrial Estate, Larapinta | $15m[1] ($12m) 141 Anton Road, Hemmant | $47m[1] ($31m) Katmandu at Laverton | $26m ($13m) DEXUS Industrial Estate, Laverton North | $108m ($72m) Future 105 Phillip Street, Parramatta[4] | $120m ($110m), Refer to page 40 opportunities: 12 Creek Street, Brisbane | $24m ($24m), for more 180 Flinders Street, Melbourne | $142m ($142m) information

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Developments committed Developments uncommitted

Note: Development pipeline shows total estimated project cost and (estimated cost to complete).

DEXUS interest in development costs.
Practical completion due in September 2015.

DEVELOPMENT LEASING SUCCESS UNDERPINS VALUE

Lots WH1, WH2 and A4 are committed. Lot A2 is uncommitted.
Also included in DEXUS trading pipeline. Property has DA approval for an office project.

REPLENISHING INDUSTRIAL LANDBANKS

480 QUEEN STREET, BRISBANE – DELIVERING A QUALITY PROPOSITION

The acquisition of industrial development sites at Hemmant and Larapinta in Queensland by the DEXUS Industrial Partnership progressed the replenishment of the Group’s industrial land bank. On completion Hemmant, Larapinta and Quarrywest will have a total project end value of $330 million.

The Premium grade 480 Queen Street, Brisbane development has topped out with the offi ce space 81% committed prior to the development’s scheduled completion in early 2016.

A rental guarantee secured at the time of acquisition ensures full income on the property for a further two years from practical completion.

DEXUS INDUSTRIAL ESTATE – FINAL STAGE COMMENCES

The third stage of development at DEXUS Industrial Estate, Laverton North has commenced, providing 50 hectares of serviced development land. Construction of a major warehouse facility at the estate is underway with a long term pre-lease to Kathmandu. The facility is due for completion in mid-2016 and will deliver a highly sustainable 25,650 square metre facility which is designed to achieve 5 star Green Star (As Built and Design) ratings.

The development also achieved a 6 star Green Star design rating, attracting interest from a range of high calibre tenants seeking a fl exible workspace that delivers market leading environmental performance.

QUARRYWEST, GREYSTANES – WAREHOUSE FACILITY PRE-COMMITMENT SECURED

Construction at Quarry at Greystanes continues on track with the buildings pre-leased to Supply Network, a 120 seat café and a speculative warehouse due for completion in September 2015.

FY16 FOCUS

Deliver key offi ce developments in Sydney, Perth and Brisbane

A pre-commitment has been secured for a warehouse facility at the adjoining Quarrywest, which will be the fi rst project for the site. On completion, the combined sites of Quarry at Greystanes and Quarrywest will comprise 319,000 square metres of industrial facilities.

Progress the DEXUS Industrial Partnership developments at Quarrywest, Hemmant and Larapinta
Progress the Australian Industrial Partnership development at Laverton North

DEXUS APPROACH

480 Queen Street, Brisbane was acquired in April 2013 as a fund-through development[1] on attractive metrics and 5 Martin Place, Sydney was acquired in April 2014 as part of the CPA transaction[2]
DEXUS built a high calibre tenancy profi le that will underpin the long term investment value of both of these properties by satisfying demand from key corporations looking to reposition their business through workplace solutions
At 5 Martin Place, DEXUS and co-owner Cbus Property repositioned the leasing and marketing approach to reignite interest

VALUE CREATED

At 480 Queen Street, 11 tenants have been secured, with 81% offi ce space[3] pre-committed
At 5 Martin Place, securing Challenger increased the level of pre-committed offi ce space to 75% from 41% at acquisition, and at 30 June 2015 was 82% committed
Both properties will contribute to increasing DEXUS’s portfolio weighted average lease expiry on practical completion
Owned by DEXUS 50%, DWPF 50%.
Acquired a 50% interest in 5 Martin Place via the DEXUS Offi ce Partnership.
Including heads of agreement.

38 PERFORMANCE THIRD PARTY FUNDS MANAGEMENT

DEXUS delivered enhanced performance, undertook transactions, progressed developments and satisfi ed the investment objectives of its third party clients.

Third Party Funds Management

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DWPF $5.8bn DEXUS Office Partner $1.8bn Australian Mandate $1.6bn Australian Industrial Partner $0.3bn DEXUS Industrial Partner $0.1bn

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$
9.6 bn
Third Party
----- End of picture text -----

IMAGES LEFT TO RIGHT Gateway Complex, Sydney Westfi eld Miranda Shopping Centre, Miranda

2015 DEXUS ANNUAL REVIEW 39

PROPERTY TRANSACTIONS[1] OF

$ 863m

INCREASE IN THIRD PARTY FUNDS UNDER MANAGEMENT SINCE 30 JUNE 2014

10[%]

CREATING VALUE THROUGH THIRD PARTY FUNDS MANAGEMENT

Third party funds management provides DEXUS and its investors with a number of benefi ts including:

Accessing a diversity of capital sources to secure opportunities through the cycle, making DEXUS more dynamic
Providing an incremental annuity-style fee income stream from funds management, property management, development management and leasing fees to enhance investor returns
Enabling DEXUS to build scale in markets which attracts a more diverse tenant base, and assists in attracting and retaining the best people

DEXUS’s third party funds under management increased by 10% over the year and by more than 60% in the past three years. This diverse $9.6 billion portfolio is one of DEXUS’s key fi nancial drivers which, along with property services, delivered $37.9 million in FY15 against a target of $35-$40 million.

DELIVERING INVESTMENT OBJECTIVES

DEXUS aims to be the wholesale partner of choice in Australian offi ce, industrial and retail property and has demonstrated its ability to deliver on the investment objectives of third party clients. DEXUS’s integrated model of investment management provides third party clients with access to multi-sector expertise in:

Investment management, which is underpinned by best practice corporate governance principles
Asset management, with strong leasing capabilities that are supported by deep market relationships
Development management, with a proven track record in delivering income enhancing developments to market
Transactional capabilities, which deliver transactions in line with clients’ investment objectives

In FY15, DEXUS was involved in $863 million of property transactions on behalf of its third party clients, delivered outperformance for third party funds, and progressed the third party development pipeline.

TRANSACTIONS

DEXUS acquired four properties on behalf of DWPF including:

Three sub-regional retail centres at Deepwater Plaza, Woy Woy; Sturt Mall, Wagga Wagga; and Shepparton Marketplace, Shepparton, delivering on DWPF’s strategy of diversifying its retail portfolio and increasing its allocation to non-discretionary retail, and
An industrial facility adjacent to an existing property in Morningside, Brisbane

In addition, DEXUS and DWPF announced in June 2015 that they had conditionally agreed to jointly acquire the Waterfront Place Complex in Brisbane, QLD, further demonstrating the value of partnering with capital partners in order to access long term core investment opportunities in a competitive transactional environment.

On behalf of the DEXUS Industrial Partnership, DEXUS acquired two industrial development sites and the fi rst incomeproducing asset, growing the potential end value of the Partnership to $360 million.

DEVELOPMENTS TO DRIVE STRONG ORGANIC GROWTH

DEXUS’s third party funds management business is well positioned for strong organic growth and performance, with a $2.3 billion development pipeline, of which $1.5 billion is committed. This will enhance returns across DEXUS’s funds under management, while also improving asset quality.

Offi ce development

DEXUS continued to make signifi cant progress on developments held in partnership with its third party clients including the offi ce fundthrough development at 480 Queen Street in Brisbane.

On completion, 5 Martin Place, Sydney and Kings Square, Perth will deliver high quality offi ce investments to DWPF’s and the DEXUS Offi ce Partnership’s portfolios respectively.

Industrial development

The completion and successful leasing of the fi rst stage of DWPF’s Drive Industrial Estate development in Richlands, QLD, delivers on DWPF’s strategy of enhancing returns by increasing the Fund’s allocation to high quality industrial properties and leverages DEXUS’s development, leasing and asset management expertise. With the fi rst stage of the estate now 86% leased, DWPF has commenced the second stage of construction which, upon completion later this year, will provide a masterplanned estate comprising more than 75,000 square metres of offi ce and warehouse space across fi ve precincts.

DEXUS is progressing its industrial developments at Quarrywest and Quarry at Greystanes, Larapinta and Hemmant in Queensland and DEXUS Industrial Estate, Laverton North. Further information on the offi ce and industrial developments is outlined in the Development section on pages 36–37.

1 Includes the acquisition of Waterfront Place Complex, Brisbane which is expected to settle in October 2015.

40 PERFORMANCE THIRD PARTY FUNDS MANAGEMENT

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THIRD PARTY FUNDS DEVELOPMENT PIPELINE
$2.3bn [2]
COMMITTEDPROJECTS FY16 FY17 FY18/FY19
$1.5bn OFFICE $
5 Properties [3] 310m
of committed projects
and
$0.8bn RETAIL
of uncommitted 5 Properties [3,4] $220m
projects
INDUSTRIAL
5 Properties [3] $120m
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DRIVE INDUSTRIAL ESTATE, RICHLANDS — DEVELOPING TO ENHANCE RETURNS FOR DWPF

DWPF leveraged DEXUS’s capabilities to acquire its fi rst industrial development opportunity in Richlands, Brisbane located in one of its core industrial markets

DEXUS APPROACH

DWPF acquired a 6.7ha development site in Richlands as part of an industrial portfolio acquisition in November 2010 and an adjacent 6.7ha industrial development site in November 2012
Amalgamated the two sites and completed masterplanning for a premium industrial estate to be developed in two stages

VALUE CREATED

2 Third party funds’ or partners’ share of development spend as at 30 June 2015.
3 Remaining spend of committed third party developments.
4 Including DEXUS third party funds’ or partners’ share of Westfi eld redevelopments.

Retail development

During the year, DWPF committed to fi ve new projects in its development pipeline. This follows the completion of the main stages of the $480 million[5] redevelopment at Westfi eld Miranda, which has transformed the centre into a digitally enabled retail, entertainment and dining destination that fi rmly positions Miranda as the leading shopping centre in the southern suburbs of Sydney.

With the Willows redevelopment underway, works also commenced at Westfi eld North Lakes, to create an entertainment and lifestyle precinct, and at Westfi eld Hurstville to reposition the centre to a value-orientated convenience based centre. Gateway, Sydney is also underway with a strong interest from potential retailers. These projects will increase the quality and diversity of DWPF’s portfolio and will place the Fund in a position to continue to perform in the future.

A major retail redevelopment of Willows, Townsville also commenced during the year. The redevelopment will reposition the centre to meet the needs of a growing Townsville community, and reinforce the centre’s place as the leading convenience based sub-regional shopping centre in the region.

5 Westfi eld Miranda redevelopment cost at 100% (owned 50/50) DWPF/Scentre Group.
Secured Target and Steinhoff/Unitrans as new tenants prior to the completion of the fi rst stage of the development in February 2015, achieving 86% occupancy
Commenced the second stage of the development, due for completion in late 2015 – providing a combined total of 75,000 square metres of premium industrial space
Delivered on DWPF’s strategy of enhancing returns by leveraging the Group’s development, leasing and asset management expertise

INCREASED THIRD PARTY DEVELOPMENT PIPELINE TO $ 2.3bn

2015 DEXUS ANNUAL REVIEW 41

DELIVERING CONTINUED OUTPERFORMANCE

DEXUS delivered outperformance against comparable property benchmark indices for its major clients. The DEXUS Offi ce Partnership outperformed its IPD benchmark in the fi rst 12 months of operation and has since delivered a 12.7% unlevered total return for the 12 months ended 30 June 2015.

DWPF maintains its track record of delivering on its objective of outperforming its benchmark over the past three and fi ve years.

DWPF performance against benchmark	DWPF performance against benchmark	DWPF performance against benchmark	DWPF performance against benchmark
Total return (post fees)	One year	Three years	Five years
DWPF	9.83%	9.21%	9.77%
Benchmark6	9.95%	9.00%	9.12%
Variance	-0.12%	0.21%	0.65%

This initiative also provides new and refreshing ways to engage customers with the benefi t of increasing dwell times and improving customer spend. During the year, PLATFORM by DEXUS was rolled out across 12 sub-regional shopping centres and Melbourne city retail precincts in FY15, delivering $3.5 million in additional revenue.

DEXUS aims to further enhance customer loyalty to assist in driving traffi c and improve sales at its retail centres through a retail digital strategy launched during the year. The strategy enables the centres to best connect and engage with their customers through utilising digital communication tools that assist in building and maintaining a more direct and personalised relationship with customers.

With its retail digital strategy now fi rmly in place, DEXUS has completed an upgrade to shopping centre websites, activated and further utilised social media channels to engage with shoppers on a daily basis, and progressed plans to introduce multiple digital channels to further understand shoppers.

REPOSITIONING CITY RETAIL

DEXUS is leveraging its retail capabilities by repositioning and enhancing the city retail offer across the Group. This approach creates value through enhancing tenant amenity and contributes to the vibrancy of the cities in which the properties are located.

DEXUS APPROACH

DEXUS adopted a precinct planning approach which identifi ed potential for retail enhancements in line with developments in the properties’ broader precincts. This included properties owned or co-owned by third party clients located in:
Martin Place, Sydney – a centrally located precinct which is undergoing a rejuvenation
Circular Quay, Sydney – a precinct that will benefi t from the new light rail infrastructure
Melbourne CBD

VALUE CREATED

Post 30 June 2015, DWPF raised $200 million in equity to part fund the acquisition of the Waterfront Place Complex, which was $260 million oversubscribed. This followed the successful completion of a $200 million equity offer in February 2015, which was signifi cantly oversubscribed and used to fund retail acquisitions and position the Fund to continue investing across its development pipeline.

LEVERAGING RETAIL CAPABILITIES TO CREATE VALUE

Retail property comprises $3.8 billion or 40% of third party funds under management. It is therefore an important contributor to performance, particularly for DWPF.

DEXUS also has a signifi cant portfolio of city retail precincts located at the base of its offi ce buildings, and leverages its retail capabilities to actively manage and to drive tenant attraction and retention.

During the year, DEXUS focused on specialty store leasing renewals and retention in across the third party retail portfolio, signing 266 new leases and renewing 256 leases across a total of 74,834 square metres.

PLATFORM by DEXUS is an initiative that enhances revenue across DEXUS managed properties through the use of digital media screens, vending and pop-up kiosks.

SUSTAINABILITY PERFORMANCE

DEXUS continued to improve the third party portfolio towards achieving Australian best-practice environmental performance through capital improvements and operational effi ciency management.

This year DEXUS improved its portfolio average NABERS Energy rating to 4.7 stars for third party offi ce properties and 3.9 stars for DEXUS managed retail properties.

ENERGY WATER GHG INTENSITY INTENSITY EMISSIONS

32.2[%] 27.8[%] 36.0[%]

SINCE BASE YEAR FY08.

FY16 FOCUS

Secure pre-commitments for third party development projects
Deliver on third party clients’ investment objectives
Drive performance in the third party portfolios through active leasing
5 Martin Place, Sydney
leased a number of fi rst-to-market retailers including COS, and RIMOWA with Cbus Property
Gateway, Circular Quay
achieved approval for a major redevelopment of the Gateway’s retail plaza, converting the existing three storey retail podium into multiple dining precincts, doubling the retail space to more than 4,500 square metres
secured heads of agreement from Neil Perry’s The Burger Project for new retail space prior to commencement of the redevelopment
Grosvenor Place, Circular Quay
commenced construction on the redevelopment of the retail plaza at Grosvenor Place alongside co-owners Investa Offi ce and Arcadia, offering a new indoor and outdoor food and beverage emporium to operate day and night
secured pre-commitments for Grand Duk, the fi rst of three new retail spaces
385 Bourke Street, Melbourne
secured a lease with Kathmandu for a fl agship store at Galleria, delivering on the centre’s targeted tenancy mix of outdoor adventure, lifestyle and health

6 Mercer IPD Post Fee Net Asset Weighted Index (Net returns, Net Asset weighted).

42 PERFORMANCE TRADING

Trading

DEXUS delivered trading profi ts of $42.6 million in FY15, leveraging capabilities across the DEXUS platform to develop and reposition properties to enhance value and sell for a profi t.

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CREATING VALUE THROUGH TRADING

>60%

DEXUS has applied its core capabilities across the Group to create value through generating trading profi ts since 2010.

OF FY15 TRADING PROFITS WERE DRIVEN FROM THE ACTIVE REPOSITIONING OF OFFICE PROPERTIES

Trading is a capability that involves the identifi cation of opportunities, which are repositioned to enhance value and divested to generate a profi t. Working closely with various areas of the business, trading utilises the expertise of Research & Transactions, Development, Leasing and Asset Management to realise trading profi ts.

DELIVERING TRADING PROFITS IN FY15

DEXUS realised trading profi ts of $42.6 million in FY15, in line with its target of approximately $40 million. More than 60% of FY15 trading profi ts were driven from the active repositioning of offi ce properties at 50 Carrington Street, Sydney and 40 Market Street, Melbourne. The remainder of trading profi ts were generated by leveraging off DEXUS’s skill base in planning, rezoning and industrial developments.

Trading properties are either acquired with the direct purpose of repositioning or development, or they are transferred from DEXUS’s existing portfolio to the trading trust to be repositioned and then sold.

Approximately $60 million of trading profi ts (post tax) have been secured for FY16.

TYPES OF TRADING OPPORTUNITIES

Type of trading Repositioning/ opportunity Value-Add

Change Development Of Use

Acquire, Acquire, Transfer to KEY ELEMENTS reposition, develop, trading package, sell sell develop, sell Properties are acquired Land is acquired and Properties in the existing DEXUS and repositioned properties are developed portfolio are identifi ed TRADING to generate profi ts on a speculative or for alternate uses and OPPORTUNITIES through refurbishment pre-lease basis, then packaged up and leasing leased up 50 Carrington Street, 163-183 Viking Drive, Sydney Wacol 154 O’Riordan Street, Mascot PROPERTIES 40 Market Street, 30 Distribution Drive, SOLD OR EXCHANGED Melbourne Laverton North 5-13 Rosebery Avenue and 25-55 Rothschild 57-101 Balham Road, 94-106 Lenore Drive, Avenue, Rosebery Archerfi eld Erskine Park

LEVERAGING DEXUS’S DNA TO DELIVER TRADING PROFITS

DEXUS has created value through generating trading profi ts since 2010.

DEXUS APPROACH

94-106 Lenore Drive, Erskine Park is an industrial property where DEXUS undertook the following steps to realise value:
acquired the site in a well-located western Sydney industrial precinct at the end of 2010
achieved planning approval for subdivision of the site
subdivided the site and sold the two smaller land parcels
designed and developed a 21,000 square metres property on a speculative basis
leased to DB Schenker, a global logistics company
sold the facility in 2012, delivering a trading profi t of $4.5 million and an IRR of 22.3%
DEXUS also acquired offi ce properties for repositioning and identifi ed industrial properties in its existing portfolio which could be packaged as change of use

VALUE CREATED

Delivered trading profi ts of $60 million (before tax) since 2010 through the repackaging and sale of seven properties
Delivered $42.6 million of trading profi ts (after tax) in FY15 with approximately $60 million (post tax) secured for FY16, of which all identifi ed properties have already settled
DEXUS’s trading profi t target is expected to be approximately $20 million pre-tax per annum over the long term

2015 DEXUS ANNUAL REVIEW 43

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REPLENISHING THE TRADING PIPELINE

DEXUS continued to grow its trading pipeline, identifying a number of properties as potential opportunities for repositioning or development and trading in future years, including:

32 Flinders Street, Melbourne – An existing DEXUS property which currently comprises a car park, with a rezoning and development application lodged for conversion to a residential apartment building
Lakes Business Park, Botany – Acquired in January 2015 with potential for long term redevelopment of the Southern site and the Northern site remaining a part of the core portfolio

DEXUS TRADING PIPELINE

REPOSITIONING FOR CHANGE OF USE TO DELIVER A TRADING PROFIT

DEXUS APPROACH

DEXUS held two business park properties in Rosebery[1] , conveniently located close to Southern Cross Drive, the Eastern Distributor and Sydney airport
DEXUS negotiated with local planning authorities to extend the Local Environmental Plan and conducted packaging activities which involved commencing residential development plans and joint venture discussions
■ The Rosebery properties were perceived as high value, low risk developments
The Rosebery properties were perceived as high value, low risk developments as they were located in a strong and established residential market, the development approval risk was minimal and the vacant possession risk was acceptable

VALUE CREATED

Sold the properties with limited risk and requiring no additional capital, delivering trading profi ts in FY15 and FY16
5-13 Rosebery Avenue and 25-55 Rothschild Avenue, Rosebery.

FY15 FY16 FY17 FY18+

30 Distribution Drive, Laverton North[1] | Sold for $19m ($1m profi t) IRR 16.3%

50 Carrington Street, Sydney[1] | Sold for $88m ($12m profi t) IRR 13.2% 40 Market Street, Melbourne[1] | Sold for $105m ($17m profi t) IRR 26% 5-13 Rosebery Avenue and 22-55 Rothschild Avenue, Rosebery[1] | Sold for $190m ($17m profi t in FY15, $74m profi t in FY16)

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154 O’Riordan Street, Mascot [1] | Sold for $32m (approx. $12m profi t in FY16)
57-65 Templar Road, Erskine Park
32 Flinders Street, Melbourne
Lakes Business Park, Botany (Southern site)
105 Phillip Street, Parramatta [2]
14 Properties in existing portfolio with development potential
$42.6m FY16 forecast approx. $60m Target $20m p.a.
(post tax) (post tax) (pre tax)
Properties sold – FY15 profi ts realised Properties identifi ed
1 FY15 and FY16 trading profi ts by property are pre-tax.
2 Also included in DEXUS development pipeline as property has a DA approval for an offi ce project.
FY16 FOCUS
� Progress high priority opportunities in the trading pipeline
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DELIVERING AN EXCELLENT RETURN AT 40 MARKET STREET, MELBOURNE

DEXUS APPROACH

Acquired in November 2012 as an identifi ed trading property for $46.7 million, well below replacement value, at a capitalisation rate of 8.0%
Secured a 15 year lease renewal from existing tenant Powercor for the whole of the building, 15 months post acquisition and well ahead of the lease expiry, ensuring 100% occupancy of the commercial space until 2030
Commenced capital works as part of the new lease, including an extensive base building upgrade in line with the tenant’s requirement and targeting a 3 star NABERS Energy rating from a zero rating
Exchanged contracts in September 2014 to pre-sell the property for $105 million

VALUE CREATED

Settlement occurred in May 2015 following the completion of the building’s upgrade, delivering trading profi ts of $17 million in FY15 and an internal rate of return of 26%

44 PEOPLE PEOPLE & CULTURE

People & Culture

We recognise that our people are integral to the success of our business, so we are investing in creating a high performance culture.

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DEXUS employs more than 350 people who are based in offi ces located in the key CBDs of Sydney, Melbourne and Brisbane, as well as in its properties around Australia.

We are focused on developing a high performance culture where we engage, retain and attract the right people with expertise across a broad spectrum of capability. We provide opportunities in a workplace and culture that is inclusive and diverse, while challenging and developing our people to reach their full potential.

THE IMPORTANCE OF GREAT LEADERSHIP IN DRIVING HIGH PERFORMANCE

Leadership capability is a key factor of our high performance culture.

Our Leadership Academy program entered the second year of a two-year program, with the primary aim being to challenge our senior leaders to extend their capabilities to drive commercial and cultural change. The program develops individualised leadership plans targeting improvement in leadership behaviours, skills and knowledge.

STAFF TRAINING AND DEVELOPMENT INVESTMENT 12,649 HOURS IN FY15

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WORKFORCE GENDER
51 [%]
FEMALE STAFF
43 [%]
FEMALE BOARD MEMBERS
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A key component of the program is a 360° feedback program which provides the opportunity for leaders to gain awareness of their own leadership style by taking into account feedback from peers and direct reports with tailored coaching for future development.

For our newly appointed managers, participation in DEXUS Management Essentials program this year has been a new and inspiring experience. 59 of our people participated in this program which is designed to equip them to meet team leadership challenges.

MEASURING OUR TEAM’S CULTURE

Over the past fi ve years, we have measured employee engagement levels and in FY14, we achieved a high engagement score of 87% which refl ects the level of our people’s motivation and satisfaction with the work they are doing.

2015 DEXUS ANNUAL REVIEW 45

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ASSISTING EMPLOYEE LEARNING AND DEVELOPMENT AND IMPROVING PROCESS EFFICIENCY

To support our development of a high performance culture, we introduced a new survey in FY15 to measure our people’s perception of our organisational culture and asked them to identify their preferred culture.

Delivering on our FY15 commitment to develop a series of learning and development programs to support people strategies, we partnered with leading industry experts to deliver customised training programs. These programs were rolled out across all offi ces to enhance individual and team capabilities.

Achieving an 82% participation rate, our people recognised that the Organisational Culture Survey was an opportunity for them to play a part in improving and further developing our culture. Teams held planning workshops which identifi ed team-specifi c actions and priorities.

With a focus on programs that will have the highest impact, we continued to implement Project Connect, involving more than 100 employees. This project is designed to give our people the skills to form enduring relationships and improve customer service through communication skills.

Going forward, our Employment Engagement Survey and Organisational Culture Survey will be conducted in alternate years, with the results of both surveys providing a broader perception of the relationship between engagement and culture.

A new online Personal Development Program was launched, offering our people the opportunity to target areas of learning that they will benefi t from the most. The program enables them to identify and assess individual competency levels and create personal action plans leading to greater effectiveness and career opportunity.

TALENT AND SUCCESSION

With much invested in the development of talent, we revitalised our talent and succession planning process to ensure that high performing people continued to be challenged and satisfi ed in their roles.

We also adopted human resources technologies for on-boarding systems, enhancing people practices and effi ciencies. Our new on-boarding system will replace manual processes currently in place, such as returning employment paperwork to make the process of joining DEXUS more effi cient, consistent and engaging.

A deeper analysis of high potential requirements enabled us to identify future leaders. In addition, we launched a new graduate development program in order to attract new people to the organisation. To encourage the further development of our leaders, several members of our senior management team were selected to participate in a Harvard Business School Leadership Development Program.

OPPORTUNITY GAINS FROM OUR BUSINESS EXCELLENCE PROGRAM

Our business excellence program aims to make things simpler and easier for our customers and each other, and we have also worked hard to instil a culture of continuous improvement in the way we work to produce operational effi ciencies.

Diversity and Inclusion

TAKING THE INITIATIVE TO BRIDGE THE GENDER GAP

Recognising the impact of taking parental leave on the superannuation entitlements of our workforce, we developed a new policy to bridge the gender gap.

DEXUS APPROACH

Undertook analysis on the fi nancial consequence of taking unpaid parental leave, revealing:
taking parental leave has a signifi cant impact on the amount of superannuation available at retirement age
nearly half of our employees return to work on a part time basis, further impacting accumulated superannuation

VALUE CREATED

Introduced a policy to ensure continuity of superannuation contributions throughout unpaid parental leave in addition to the 12 weeks paid parental leave already offered

Supported our commitment to achieving gender equality in the workplace through closing the gap in accumulated superannuation available to men and women at retirement age

46 PEOPLE PEOPLE & CULTURE

PERFORMANCE REVIEW PROCESS

Our performance review process specifi es measurable outcomes which take into account our overall business objectives together with the individual contribution of each senior leader. The performance of our senior leaders is aligned with:

The fi nancial performance of the business
The overall business strategy
The contribution to stakeholder engagement
Their leadership role with our people
The Group’s culture

We adopt a Balanced Scorecard methodology where contribution and achievement are measured against threshold, stretch and outperformance targets, motivating all of our people to strive for outperformance.

This year, we introduced Divisional Scorecards to some areas of the business in order to provide clarity on key divisional focus areas and to encourage greater collaboration through shared measures of success.

We continued to enhance communication and transparency throughout our organisation to ensure that our people are informed of the outcomes required to achieve our strategy, to enable us to continue to deliver on our strategic objectives.

PROMOTING HEALTH AND WELL-BEING

We value our people, recognising the importance of their health and well-being as a driver of performance. This year we introduced a week dedicated to the health and wellbeing of our people, encouraging them to take control of their own health.

During Health Week we offered physical health checks and mental health awareness seminars including presentations by BeyondBlue and The Resilience Institute, providing our people with the knowledge and skills needed to address mental health and stress mastery in the workplace.

We operate a safety management system that is certifi ed under an internationally applied Standard for occupational health and safety management systems. Through this system, we comprehensively monitor health and safety risks and manage solutions to prevent workplace incidents. During the year, we recorded one incident involving a DEXUS employee relating to a personal injury incurred during a sporting activity.

SUPPORTING WORKFORCE DIVERSITY

As an active employer in the real estate sector, we aim to develop and maintain an inclusive and diverse culture. We believe diversity enables our people to make better informed decisions and we have been proactive in enhancing the diversity of our workforce through our values, policies and behaviours.

This year, we implemented a program of events and practices supporting diversity and inclusion in our workplace. This program is led by our Corporate Responsibility, Inclusion and Diversity Committee which is chaired by our CEO.

Our diversity commitment includes establishing measurable diversity objectives. In 2011 we set gender targets for 33% female participation by Non-Executive Directors and at senior management level by 2015. At 30 June 2015, our female participation rate was 43% for non-Executive Directors and 26% for senior management.

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SUPPORTING THE COMMUNITY THROUGH DEXUS DIAMOND WEEK

DEXUS APPROACH

DEXUS has a long-standing commitment to contributing to the well-being of society through the provision of one day’s paid volunteering leave to all of our permanent employees
Launched DEXUS Diamond Week in August 2014, a community partnership with the Sydney Children’s Hospital Foundation
Engaged our people in fundraising and volunteering activities at the Sydney Children’s Hospital and other like charities around Australia

VALUE CREATED

205 people participated in volunteering activities across eight charities during DEXUS Diamond Week

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Conducted fundraising and awareness activities in ten DEXUS managed offi ce foyers around the Sydney CBD
Donated $27,950 to the Sydney Children’s Hospital Foundation

2015 DEXUS ANNUAL REVIEW 47

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FROM LEFT TO RIGHT Alison Harrop, Craig Mitchell, Brett Cameron, Kevin George, Darren Steinberg, Deborah Coakley, Ross Du Vernet, David Yates

To further the participation of women at senior levels, we adopted a Plus One commitment in which executive leaders committed to hiring a minimum of one senior female into an open role. As a result, we recruited seven females to senior leadership roles.

In addition, we are supporting the advancement of women in the property industry by partnering with CBRE to provide a work experience placement for a female property student.

CONTRIBUTING TO THE COMMUNITY

To further promote gender diversity in our workplace, we introduced a policy to support new parents by continuing their superannuation entitlement throughout the paid and non-paid parental leave period. Refer to the case study on page 45 for further information.

We have a long-standing commitment to contributing to the well-being of society through the provision of one day’s paid volunteering leave to all of our permanent employees. In 2015, we launched DEXUS Diamond Week, a week of fundraising activities where we contributed to the Sydney Children’s Hospital Foundation and like-minded charities around Australia. In FY15, DEXUS contributed a total of $1,019,154 in-kind support and donations to not-for-profi t charities around Australia.

This year, we celebrated International Women’s Day both internally and with our partner CBRE. The celebrations hosted by our Lean In Committee included a presentation by the CEO of Diversity Council Australia.

COMMUNITY SUPPORT

We continued to support not-for-profi t charities through in-kind volunteering and monetary donations.

Buffed ■ Property Industry Foundation
■ Cancer Council ■ PCYC
Chain Reaction
Salvation Army
CREATE Foundation
Sydney Children’s Hospital Foundation
Dressed for Success
The Sculptors Society
The Station
Leukaemia Foundation
Lifeline Western Sydney
The Wayside Chapel
Lions Club
Wesley Mission
NSW Kids in Need ■ Wheelchair Sports

Group Management Committee

DARREN STEINBERG Chief Executive Offi cer & Executive Director

BRETT CAMERON

General Counsel & Company Secretary

Legal, Risk, Governance, Company Secretary, Records Management

DEBORAH COAKLEY Executive General Manager, People & Asset Solutions People & Culture, Asset Solutions

ROSS DU VERNET Executive General Manager, Strategy, Transactions & Research

Strategy, Transactions, Research

KEVIN GEORGE Executive General Manager, Offi ce & Industrial

Offi ce, Developments, Industrial, Trading

ALISON HARROP

Deputy Chief Financial Offi cer

Finance , Treasury, Strategic Planning

CRAIG MITCHELL

FY16 FOCUS

Build an inclusive and diverse culture through leadership and diversity programs
Invest in the capabilities of leaders and managers to create a high performance culture
Develop a comprehensive approach to improve the health and wellbeing of employees
Support employees through development programs, engagement initiatives, leadership development and culture building activities
Improve DEXUS’s employee value proposition to attract the right people to work and build careers at DEXUS

Executive Director Finance & COO Capital & Funds Management, Retail, Technology

DAVID YATES Executive General Manager, Investor Relations, Marketing & Communications Investor Relations, Marketing, Communications, Head Offi ce Services

48 INVESTOR RELATIONS

Investor Relations

The senior management of DEXUS maintain a strong rapport with the investment community through proactive and regular investor engagement initiatives. DEXUS is committed to delivering high levels of transparency and disclosure by:

Releasing accurate and relevant information to investors to ensure they can make informed investment decisions
Providing regular access to senior management through meetings, presentations, property tours, conferences, dedicated investor roadshows, conference calls and webcasts

DEXUS adopts strong corporate governance including a policy that ensures a minimum of two DEXUS representatives participate in any investor or sell-side analyst meeting and that a record of the meeting is maintained on an internal customer relationship management database.

On Wednesday, 28 October 2015, DEXUS’s Annual General Meeting (AGM) will be held at DEXUS Place, Level 5, One Margaret Street, Sydney commencing at 2.00pm. Investors are encouraged to attend the AGM in person to meet the Board of Directors and the Executive team. The AGM will be webcast at www.dexus.com for investors who are unable to attend in person.

DEXUS recognises the importance of communication with existing and potential institutional investors, sell-side analysts and retail investors.

CONTACT US

Key Dates

If you have any questions regarding your security holding or wish to update your personal or distribution payment details, please contact the Registry by calling the DEXUS Infoline on +61 1800 819 675.

28 OCTOBER 2015

Annual General Meeting

31 DECEMBER 2015

This service is available from 8.30am to 5.30pm (Sydney time) on all business days. All correspondence should be addressed to: DEXUS Property Group C/ – Link Market Services Limited Locked Bag A14 Sydney South NSW 1235

Distribution Record Date For the six months ended 31 December 2015

17 FEBRUARY 2016

2016 Half-Year Results

29 FEBRUARY 2016

Distribution Payment Date For the six months ended 31 December 2015

DEXUS is committed to delivering a high level of service to all investors. If you feel DEXUS could improve its service or you would like to make a suggestion or a complaint, your feedback is appreciated. DEXUS’s contact details are:

30 JUNE 2016

Distribution Record Date For the six months ended 30 June 2016

Investor Relations DEXUS Property Group PO Box R1822 Royal Exchange NSW 1225 [email protected]

17 AUGUST 2016 2016 Annual Results

31 AUGUST 2016

Distribution Payment Date For the six months ended 30 June 2016

DEXUS Funds Management Limited is a member of the Financial Ombudsman Service (FOS), an independent dispute resolution scheme. If you are not satisfi ed with the resolution of your complaint by DEXUS, you may refer your complaint to FOS.

26 OCTOBER 2016

2016 Annual General Meeting

Please note that these dates may be subject to change without prior notice. Any changes in our key dates will be published on our website.

Investor Communications

DEXUS is committed to ensuring all investors have equal access to information about its investment activities. In line with the Group’s commitment to long term integration of sustainable business practices, investor communications are provided via various electronic methods including:

DEXUS’s website – www.dexus.com provides a wide range of information, including a two minute corporate video, ASX announcements, investor information and reports. In 2015, the Group released a suite of capability profi les, strategic case studies and videos all available at www.dexus.com/news

OTHER INVESTOR TOOLS AVAILABLE INCLUDE:

Online enquiry – www.dexus.com/enquire is an easy to complete online enquiry form
Investor login – www.dexus.com/update enables investors to update their details and download statements
Subscribe to alerts – www.dexus.com/subscribe enables investors to receive DEXUS communications immediately after release
Create your own property or leasing reports – select and download information on our property portfolio and space available
Events calendar – notifi es investors of key events and reporting dates
DEXUS IR App – provides users access to DEXUS’s investor communications and security price – download for free from Apple’s App Store or Google Play
LinkedIn – DEXUS now engages with its followers via LinkedIn. To receive DEXUS LinkedIn communications, visit our Investor Centre at www.dexus.com/investors and click on DEXUS on LinkedIn – Follow us.

Responsible Entity

DEXUS Funds Management Limited ABN 24 060 920 783 AFSL 238163

Directors of the Responsible Entity Christopher T Beare, Chair Elizabeth A Alexander AM Penny Bingham-Hall John C Conde AO Tonianne Dwyer Craig D Mitchell, COO W Richard Sheppard Darren J Steinberg, CEO Peter B St George

Secretaries of the Responsible Entity Brett Cameron Scott Mahony

Registered offi ce of the Responsible Entity

Level 25, Australia Square 264 George Street Sydney NSW 2000

Investor enquiries Registry Infoline: +61 1800 819 675 Investor Relations: +61 2 9017 1330 Email: [email protected] www.dexus.com/enquire

Security registry Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Locked Bag A14 Sydney South NSW 1235

Registry Infoline: +61 1800 819 675 Fax: +61 2 9287 0303 Email: registrars@ linkmarketservices.com.au www.linkmarketservices.com.au

Open Monday to Friday between 8.30am and 5.30pm (Sydney time).

For enquiries regarding security holdings, contact the security registry, or access security holding details at www.dexus.com/update

Australian Securities Exchange ASX Code: DXS

IR App

Download the DEXUS IR App to gain instant access to the latest DXS stock price, ASX announcements, presentations, reports, webcasts and more.

PO Box R1822 Royal Exchange Sydney NSW 1225

Phone: +61 2 9017 1100 Fax: +61 2 9017 1101 Email: [email protected] www.dexus.com

Auditors

PricewaterhouseCoopers Chartered Accountants 201 Sussex Street Sydney NSW 2000

DEXUS now engages with its followers via LinkedIn – www.dexus. com/investors and click on DEXUS on LinkedIn – Follow us.

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Property expertise. Institutional rigour. Entrepreneurial spirit.

www.dexus.com

DEXUS Annual Report Creating Value 2015

DEXUS AnnuAl REPORT 2015

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CONTENTS
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CONTENTS
Chair and CEO Review	1
Board of Directors	4
Corporate Governance Statement	6
Directors’ Report	18
Auditor’s Independence Declaration	47
Consolidated Statement of Comprehensive Income 48
Consolidated Statement of Financial Position	49
Consolidated Statement of Changes in Equity	50
Consolidated Statement of Cash Flows	52
About this Report	53
Notes to the Financial Statements	55
Group Performance	55
Property Portfolio Assets	65
Capital and Financial Risk and Working Capital	72
Other Disclosures	86
Directors’ Declaration	93
Independent Auditor’s Report	94
Additional Information	96
Investor Information	98
Key ASX Announcements	100

2015 ANNUAL REPORTING SUITE

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3 4
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DEXUS Property Group presents its 2015 Annual Reporting Suite for the year ended 30 June 2015, demonstrating how it manages its financial and non financial performance in line with its strategy.

The 2015 DEXUS Annual Review

An integrated report summarising financial, operational and Corporate Responsibility and Sustainability (CR&S) performance. This report should be read in conjunction with the DEXUS 2015 Annual Report.

DEXUS Property Group (DXS) (ASX Code: DXS) consists of DEXUS Diversified Trust (DDF) (ARSN 089 324 541), DEXUS Industrial Trust (DIT), DEXUS Office Trust (DOT) and DEXUS Operations Trust (DXO), collectively known as DXS or the Group.

The registered office of the Group is Level 25, Australia Square, 264-278 George Street, Sydney, NSW 2000.

This 2015 DEXUS Annual Report Provides DEXUS’s Consolidated Financial Statements, Operating and Financial Review, Corporate Governance Statement and Board of Directors information. This report should be read in conjunction with the 2015 DEXUS Annual Review.
The 2015 DEXUS Combined Financial Statements Comprises the Financial Statements of DEXUS Industrial Trust, DEXUS Office Trust and DEXUS Operations Trust. This report should be read in conjunction with the 2015 DEXUS Annual Report and Annual Review.
The 2015 DEXUS Performance Pack

Under Australian Accounting Standards, DDF has been deemed the parent entity for accounting purposes. Therefore the DDF consolidated Financial Statements include all entities forming part of DXS.

All ASX and media releases, Financial Statements and other information are available on our website: www.dexus.com

Provides the data and detailed information supporting the results outlined in the 2015 DEXUS Annual Review and is available in the online Annual Reporting Suite, at www.dexus.com .

The Annual Reporting Suite is available in hard copy by email request to [email protected] or by calling +61 1800 819 675 .

2015 dexus annual rePOrT 1

Chair and CeO review

DEXUS Property Group delivered strong results across key business areas in 2015, ensuring it is well positioned to continue to create value for investors.

We are pleased to present the 2015 Annual Review for DEXUS Property Group.

DEXUS has had a successful 12 months, reflecting our determination to create value at every level of our operations and ensuring we are well-positioned to continue to create value for investors.

DEXUS’s performance during the year has met or exceeded all of our financial objectives.

DEXUS’s net profit increased 52.2% to $618.7 million. Return On Equity[1] for the 12 months to 30 June 2015 was 11.5%, above our target of 9–10% per annum through the cycle, and ahead of the prior year which was impacted by the CPA transaction.

MARkET CONDiTiONS

Our strong financial outcomes were achieved in a market characterised by mixed economic news, both domestically and globally. Office markets are showing early signs of improvement, particularly in the Sydney and Melbourne CBDs, however the recovery in the Brisbane and Perth markets remains subdued.

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DEXUS Office Partnership portfolio delivered an unlevered total return for 12 months to 30 June 2015

Achieved a distribution of 41.04 cents per security, an increase on FY14 of 9.3[%]

12.7[%]

During the year, we leveraged our diverse capabilities to:

§ Improve the performance of our property portfolio
§ Drive the performance of, and generate revenue from, our funds management business
§ Deliver trading profits from identified trading opportunities

DELivERiNg ON STRATEgy

Our strategy continues to deliver for investors and in FY15 we further positioned DEXUS as a leader in the Australian real estate sector.

Our people remained focused on enhancing returns for investors and creating value through our four strategic objectives:

§ To be the leader in office Investing in and developing properties and spaces that our customers want to occupy
§ To have the best core capabilities Utilising our core capabilities to constantly improve the levels of service and amenity we provide to our customers
§ To be the wholesale partner of choice Partnering with third parties to grow in core markets and attract expertise

In our property portfolio we focused on maximising cash flow by working closely with new and existing customers to secure great leasing outcomes throughout the year, increasing office portfolio occupancy to 95.3%. We created value through meeting the needs of a diverse range of customers, including expanding our fitted suites offering to attract small to medium businesses.

In our third party funds management business , we transacted properties and progressed the development pipeline to satisfy the investment plans of our clients, growing third party funds under management by 10% to $9.6 billion. We also progressed plans to enhance the retail space at the base of our office buildings to improve customer amenity and enhance returns.

In our trading business , we delivered an improved after tax profit of $42.6 million driven by settlements of properties that we had actively repositioned. We also made progress on replenishing the trading pipeline for future years.

§ To actively manage capital and risk Maintaining a conservative approach to financial and operational risk
Return on equity is calculated as the growth in NTA per security plus the distribution paid/payable per security divided by the opening NTA per security.

Chair and CEO Review Continued

STRONg RETURNS FROM COMMONwEALTh PROPERTy OFFiCE FUND TAkEOvER

We realised value from the takeover of Commonwealth Property Office Fund (CPA), by acting on identified opportunities in the portfolio. The DEXUS Office Partnership[2] portfolio delivered an unlevered total return 12.7% for the 12 months to 30 June 2015. DEXUS’s investment in the Office Partnership delivered a 20.4% levered return to DEXUS for the year.

DELivERiNg SOLiD SECURiTy hOLDER RETURNS

DEXUS has outperformed the A-REIT index by 190 basis points over the past five years. While DEXUS underperformed the A-REIT index over one and three year periods, it has delivered solid total security holder returns of 15.8% per annum over both of these periods.

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MAiNTAiNiNg A STRONg bALANCE ShEET

Including the divestment of non-strategic and trading properties, we undertook $2 billion of transactions across the office, industrial and retail sectors.

Our acquisition of Lakes Business Park, in Botany in January 2015 presents an opportunity to create value though a dual strategy to enhance value and advance a trading opportunity.

In June 2015, we announced that DEXUS and DEXUS Wholesale Property Fund (DWPF) had entered into a conditional agreement to jointly acquire Waterfront Place and Eagle Street Pier in Brisbane (Waterfront Place Complex) for a total price of $635 million[3] , building on our established presence in the Brisbane CBD office market and enabling us to leverage our expertise in a market where we have been able to demonstrate leasing success.

FOCUS ON ThE CUSTOMER

We have made it a priority to increase our understanding of our customers and their needs, providing workspace solutions for a diverse range of customers. In office, we continued to deliver on our fitted suites offering to capture demand from a rising number of small to medium sized businesses. We also introduced a number of initiatives to enhance the customer experience.

Our active leasing approach resulted in the leasing of almost 400,000 square metres of space across the DEXUS portfolio, representing a 25.6% increase in leasing volumes compared to the prior year.

CREATiNg vALUE ThROUgh DEvELOPMENT

Our key office developments at 5 Martin Place in Sydney and Kings Square in Perth will enhance the quality of our office portfolio and contribute to future growth. The Kings Square development project is nearing completion and Ashurst moved into 5 Martin Place in July 2015.

CREATiNg A high PERFORMANCE CULTURE

DRiviNg bUSiNESS EXCELLENCE AND hARNESSiNg iNNOvATiON ACROSS ThE gROUP

A great example of DEXUS innovation in action was the launch of DEXUS Place, a state-of-the-art premium meeting, training and conference facility. The facility was created following extensive market research and is specifically tailored to meet the needs of our customers for on-demand access to quality meeting space. Our first facility is located at One Margaret Street in Sydney and we have plans to replicate the facility in Melbourne and Brisbane.

Along with innovation we have also worked hard to instil a culture of continuous improvement to achieve operational efficiencies in the way we work. During the year we launched a mechanism to capture ideas from the business and enable improvements to be shared across the Group. This has had the benefits of reducing costs and saving time.

We continued to improve the diversification, duration and cost of our debt through accessing a market we know well, raising $250 million through a US Private Placement issue.

DEXUS executed the $3.7 billion takeover of Commonwealth Property Office Fund in April 2014 and formed the DEXUS Office Partnership with its capital partner, Canada Pension Plan Investment Board.

Excluding acquisition costs.

2015 dexus annual rePOrT 3

SUSTAiNAbiLiTy APPROACh

bOARD OF DiRECTORS

ANNUAL gENERAL MEETiNg

Our Annual General Meeting (AGM) was held at our head office at Australia Square in October 2014. All resolutions were passed. Post the AGM, a number of investors took the opportunity to tour two of our Premium properties, Governor Phillip Tower at 1 Farrer Place, and 1 Bligh Street in Sydney.

Looking ahead to FY16, we will continue to create value and position the Group for future growth by maximising the performance of our core property portfolio.

Distributions will be paid in line with free cash flow, to deliver growth in distribution per security of 5.5–6.0% for the 12 months ending 30 June 2016.

Additional information on our financial and operational performance is provided in the 2015 DEXUS Annual Review which is available at www.dexus.com/annualreview2015 or by emailing [email protected] to request a printed copy.

Finally, we would like to thank you, our security holders, for your continued support. We are committed to building on DEXUS’s strong foundations and delivering superior risk- adjusted returns.

OUTLOOk AND FUTURE PRiORiTiES

The economic outlook for the year ahead remains subdued, with the economy expected to grow at a similar rate in FY16. Over the next year, the economies of New South Wales and Victoria are likely to outperform other states. Queensland will remain a two-tier office market and Western Australia’s economic performance will lag as it recovers from the end of the mining boom.

Positive leasing momentum is expected to continue in Sydney and Melbourne, where the majority of our properties are located, as positive business confidence supports a mild improvement in tenant demand. However, rental growth prospects remain relatively subdued in FY16 due to the availability of new supply.

Investment demand is expected to remain high for quality office properties in our core markets of Sydney, Melbourne, Brisbane and Perth.

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Chris Beare Chair

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Darren Steinberg CEO

11 August 2015

Barring unforeseen circumstances guidance is supported by the following assumptions: flat like-for-like income across the DEXUS combined portfolio, weighted average cost of debt of circa 4.9%, trading profits of approximately $60m net of tax, Management Operations FFO of $45-50m (including third party development management fees), approximately $150m net proceeds from non-core property divestments during FY16, excluding any buy-back of DEXUS securities, and excluding any further transactions.

Board of Directors

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ChRiSTOPhER T bEARE

Chair and Independent Director

BSc, BE (Hons), MBA, PhD, FAICD

Chris Beare is both the Chair and an Independent Director of DEXUS Funds Management Limited. He is also Chair of the Board Nomination Committee and a member of the Board People & Remuneration Committee. Chris has significant experience in international business, technology, strategy, finance and management. Previously Chris was Executive Director of the Melbourne based Advent Management venture capital firm prior to joining investment bank Hambros Australia in 1991. Chris became Head of Corporate Finance in 1994 and joint Chief Executive in 1995, until Hambros was acquired by Société Générale in 1998. Chris remained a Director of SG Australia until 2002. From 1998 onwards, Chris helped form Radiata, a technology start-up in Sydney and Silicon Valley, and as Chair and Chief Executive Officer, Chris steered it to a successful sale to Cisco Systems in 2001 and continued part time for four years as Director Business Development for Cisco. Chris has previously been a director of a number of companies in the finance, infrastructure and technology sectors.

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ELizAbETh A ALEXANDER AM

Independent Director

BComm, FCA, FAICD, FCPA

Elizabeth Alexander is an Independent Director of DEXUS Funds Management Limited, Chair of DEXUS Wholesale Property Limited and a member of the Board Audit Committee.

Elizabeth is the Chair of Medibank and the Chancellor of the University of Melbourne.

Elizabeth brings to the Board extensive experience in accounting, finance, corporate governance and risk management and was formerly a partner with PricewaterhouseCoopers. Elizabeth’s previous appointments include National Chair of the Australian Institute of Company Directors, National President of the Australian Society of Certified Practising Accountants, Deputy Chairman of the Financial Reporting Council and a member of the Takeovers Panel. Elizabeth was previously Chair of CSL and Director of Amcor and Boral.

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PENNy biNghAM-hALL

Independent Director

BA (Industrial Design), FAICD, SF (Fin)

Penny Bingham-Hall is an Independent Director of DEXUS Funds Management Limited and a member of the Board Risk Committee and Board People & Remuneration Committee.

Penny is a Non-executive Director of BlueScope Steel Limited, Port Authority of NSW, SCEGGS Darlinghurst Limited and Taronga Conservation Society Australia. She is also an independent director of Macquarie Specialised Asset Management Limited.

Penny has broad industry experience having spent more than 20 years in a variety of senior management roles with Leighton Holdings Limited including Executive General Manager Strategy, responsible for the Group’s overall business strategy and Executive General Manager Corporate, responsible for business planning, corporate affairs including investor relations and governance systems. Penny is a former director of the Australian Postal Corporation and the Global Foundation (a member-based organisation promoting high-level thinking within Australia and cooperation between Australia and the world). She also served as the inaugural Chair of Advocacy Services Australia Limited (a not-for-profit organisation promoting the interests of the Australian tourism, transport, infrastructure and related industries) from 2008 to 2011.

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JOhN C CONDE AO

Independent Director

BSc, BE (Hons), MBA

John Conde is an Independent Director of DEXUS Funds Management Limited, Chair of the Board People & Remuneration and a member of the Board Nomination Committee.

John is the Chairman of Bupa Australia Holdings Pty Limited, Cooper Energy Limited and the McGrath Foundation. John is President of the Commonwealth Remuneration Tribunal and Deputy Chairman of Whitehaven Coal Limited. John is also Chairman of the Australian Olympic Committee (NSW) Fundraising Committee.

John brings to the Board extensive experience across diverse sectors including commerce, industry and government. John was previously Chairman of Ausgrid (formerly EnergyAustralia), Destination NSW and the Sydney Symphony Orchestra. He was Director of BHP Billiton and Excel Coal Limited, Managing Director of Broadcast Investment Holdings Pty Limited, Director of Lumley Corporation and President of the National Heart Foundation of Australia.

2015 dexus annual rePOrT 5

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TONiANNE DwyER

Independent Director

BJuris (Hons), LLB (Hons)

Tonianne Dwyer is an Independent Director of DEXUS Funds Management Limited and DEXUS Wholesale Property Limited, Chair of the Board Risk Committee and a member of the Board Audit Committee.

Tonianne is a Director of Cardno Limited, Metcash Limited and Queensland Treasury Corporation. She is also a member of the Senate of the University of Queensland.

Tonianne brings to the Board significant experience as a company director and executive working in listed property, funds management and corporate strategy across a variety of international markets.

Tonianne was a Director from 2006 until 2010 of Quintain Estates and Development – a listed United Kingdom property company comprising funds management, investment and urban regeneration – and was Head of Funds Management from 2003. Prior to joining Quintain, Tonianne was a Director of Investment Banking at Hambros Bank, SG Cowen and Societe Generale based in London. Tonianne also held directorships on a number of boards associated with Quintain’s funds management business including the Quercus, Quantum and iQ Property Partnerships and the Bristol & Bath Science Park Stakeholder Board.

CRAig D MiTChELL

Executive Director Finance & Chief Operating Officer

BComm, MBA (Exec), FCPA, HBS (AMP)

Craig is Executive Director Finance and Chief Operating Officer (COO) of DEXUS Property Group and an Executive Director of DEXUS Funds Management Limited.

Craig is responsible for operational and strategic finance, accounting, tax, treasury and IT and in his role as COO, is responsible for third party funds management and DEXUS’s retail property portfolio.

Craig has more than 20 years of financial management and accounting experience, with over 15 years specialising in the property industry. Craig previously held positions with Stockland Group and Westfield.

Craig has a Masters of Business Administration (Executive) from the Australian Graduate School of Management, a Bachelor of Commerce and is a Fellow of CPA Australia. He has also completed the Advanced Management Program at Harvard University, Boston.

RiChARD ShEPPARD

Independent Director

BEc Hons, FAICD

Richard Sheppard is an Independent Director of DEXUS Funds Management Limited, Chair of the Board Audit Committee and a member of the Board Risk Committee.

Richard is the Chairman of Green State Power Pty Ltd, a Director of Snowy Hydro Limited and Echo Entertainment Group, and a Treasurer of the Bradman Foundation.

Richard brings to the DEXUS Board extensive experience in banking and finance and as a director and Chairman of listed and unlisted property trusts. He was Managing Director and Chief Executive Officer of Macquarie Bank Limited and Deputy Managing Director of Macquarie Group Limited from 2007 until late 2011.

Following seven years at the Reserve Bank of Australia, Richard joined Macquarie Group’s predecessor, Hill Samuel Australia in 1975, initially working in Corporate Finance. He became Head of the Corporate Banking Group in 1988 and headed a number of the Bank’s major operating Groups, including the Financial Services Group and the Corporate Affairs Group. He was a member of the Group Executive Committee since 1986 and Deputy Managing Director since 1996. Richard was also Chairman of the Australian Government’s Financial Sector Advisory Council, Macquarie Group Foundation and Eraring Energy.

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PETER b ST gEORgE

Independent Director

CA(SA), MBA

Peter is an Independent Director of DEXUS Funds Management Limited and a member of the Board Audit Committee and Board Risk Committee.

Peter is a Director of First Quantum Minerals Limited (listed on the Toronto Stock Exchange and London Stock Exchange). Peter has more than 20 years’ experience in senior corporate advisory and finance roles within NatWest Markets and Hill Samuel & Co in London. Peter acted as Chief Executive/Co-Chief Executive Officer of Salomon Smith Barney Australia/NatWest Markets Australia from 1995 to 2001. Peter was previously a Director of Boart Longyear, Spark Infrastructure Group, its related companies and SFE Corporation Limited.

DARREN J STEiNbERg

Chief Executive Officer and Executive Director

BEc, FAICD, FRICS, FAPI

Darren Steinberg is the CEO of DEXUS Property Group and an Executive Director of DEXUS Funds Management Limited. Darren has over 25 years’ experience in the property and funds management industry with an extensive background in office, industrial and retail property investment and development.

Darren has a Bachelor of Economics from the University of Western Australia. Darren is a Director and the former National President of the Property Council of Australia, a Fellow of the Australian Institute of Company Directors, Royal Institution of Chartered Surveyors and the Australian Property Institute.

Corporate Governance statement

ASX CORPORATE gOvERNANCE COUNCiL PRiNCiPLES AND RECOMMENDATiONS RECONCiLiATiON

The Corporate Governance Statement is accurate and up to date as at 11 August 2015 and has been approved by the Board on 29 July 2015.

The following reconciliation of the ASX Corporate Governance Principles & Recommendations with 2014 Amendments – Third Edition (ASX Principles) against DEXUS’s governance framework discloses how DEXUS meets each of the ASX Principles.

ASX	Principles	Reference
Principle 1 – Lay solid foundations for management and oversight		Page 9
1.1	A listed entity should disclose:	1.1 – 1.5
	(a) the respective roles and responsibilities of its board and management, and
	(b) those matters expressly reserved to the board and those delegated to management
1.2	A listed entity should:	2.4
	(a) undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director, and	Notice of Meeting
	(b) provide security holders with all material information in its possession relevant to a decision on
	whether or not to elect or re-elect a director
1.3	A listed entity should have a written agreement with each director and senior executive setting out the terms	2.4
	of their appointment.
1.4	The company secretary of a listed entity should be accountable directly to the board, through the chair,	1.4
	on all matters to do with the proper functioning of the board.
1.5	A listed entity should:	3.6
	(a) have a diversity policy which includes requirements for the board or a relevant committee of the
	board to set measurable objectives for achieving gender diversity and to assess annually both the
	objectives and the entity’s progress in achieving them
	(b) disclose that policy or a summary of it, and
	(c) disclose as at the end of each reporting period the measurable objectives for achieving gender
	diversity set by the board or a relevant committee of the board in accordance with the entity’s
	diversity policy and its progress towards achieving them, and either:
	i. the respective proportions of men and women on the board, in senior executive positions and
	across the whole organisation (including how the entity has defned ‘senior executive’ for these
	purposes), or
	ii. if the entity is a ‘relevant employer’ under the Workplace Gender Equality Act, the entity’s most
	recent ‘Gender Equality Indicators’, as defned in and published under that Act
1.6	A listed entity should:	2.9
	(a) have and disclose a process for periodically evaluating the performance of the board, its committees
	and individual directors, and
	(b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in
	the reporting period in accordance with that process
1.7	A listed entity should:	Remuneration
	(a) have and disclose a process for periodically evaluating the performance of its senior executives, and	Report
	(b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in
	the reporting period in accordance with that process
Principle 2 – Structure of the board to add value		Pages 9-13
2.1	The board of a listed entity should:	2.8
	(a) have a nomination committee which:
	i. has at least three members, a majority of whom are independent directors, and
	ii. is chaired by an independent director, and disclose
	iii. the charter of the committee
	iv. the members of the committee, and
	v. as at the end of each reporting period, the number of times the committee met throughout the
	period and the individual attendances of the members at those meetings, or
	(b) if it does not have a nomination committee, disclose that fact and the processes it employs to
	address board succession issues and to ensure that the board has the appropriate balance of
	skills, knowledge, experience, independence and diversity to enable it to discharge its duties and
	responsibilities effectively
2.2	A listed entity should have and disclose a board skills matrix setting out the mix of skills and diversity that	2.1
	the board currently has or is looking to achieve in its membership

2015 dexus annual rePOrT 7

ASX	Principles	Reference
2.3	A listed entity should disclose:	2.3
	(a) the names of the directors considered by the board to be independent directors
	(b) if a director has an interest, position, association or relationship of the type described in Box 2.3 but
	the board is of the opinion that it does not compromise the independence of the director, the nature
	of the interest, position, association or relationship in question and an explanation of why the board
	is of that opinion, and
	(c) the length of service of each director
2.4	A majority of the board of a listed entity should be independent directors.	2.2 and 2.3
2.5	The chair of the board of a listed entity should be an independent director and, in particular, should not be	2.2 and 2.3
	the same person as the CEO of the entity.
2.6	A listed entity should have a program for inducting new directors and provide appropriate professional	2.4
	development opportunities for directors to develop and maintain the skills and knowledge needed to perform
	their role as directors effectively.
Principle 3 – Act ethically and responsibly		Pages 14-15
3.1	A listed entity should:	3.1
	(a) have a code of conduct for its directors, senior executives and employees, and
	(b) disclose that code or a summary of it
Principle 4 – Safeguard integrity in corporate reporting		Page 15
4.1	The board of a listed entity should:	4.1
	(a) have an audit committee which:
	(1) has at least three members, all of whom are non-executive directors and a majority of whom are
	independent directors, and
	(2) is chaired by an independent director, who is not the chair of the board,
	and disclose:
	(3) the charter of the committee
	(4) the relevant qualifcations and experience of the members of the committee, and
	(5) in relation to each reporting period, the number of times the committee met throughout the
	period and the individual attendances of the members at those meetings, or
	(b) if it does not have an audit committee, disclose that fact and the processes it employs that
	independently verify and safeguard the integrity of its corporate reporting, including the
	processes for the appointment and removal of the external auditor and the rotation of the audit
	engagement partner
4.2	The board of a listed entity should, before it approves the entity’s fnancial statements for a fnancial	4.1
	period, receive from its CEO and CFO a declaration that, in their opinion, the fnancial records of the entity
	have been properly maintained and that the fnancial statements comply with the appropriate accounting
	standards and give a true and fair view of the fnancial position and performance of the entity and that the
	opinion has been formed on the basis of a sound system of risk management and internal control which is
	operating effectively.
4.3	A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available	6.1
	to answer questions from security holders relevant to the audit.
Principle 5 – Make timely and balanced disclosure		Page 16
5.1	A listed entity should:	5.1
	(a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules,
	and
	(b) disclose that policy or a summary of it
Principle 6 – Respect the rights of security holders		Page 16
6.1	A listed entity should provide information about itself and its governance to investors via its website.	www.dexus.com
6.2	A listed entity should design and implement an investor relations program to facilitate effective two-way	6.2
	communication with investors.
6.3	A listed entity should disclose the policies and processes it has in place to facilitate and encourage	6.2
	participation at meetings of security holders.
6.4	A listed entity should give security holders the option to receive communications from, and send	6.2
	communications to, the entity and its security registry electronically.

Corporate Governance Statement Continued

ASX CORPORATE gOvERNANCE COUNCiL PRiNCiPLES AND RECOMMENDATiONS RECONCiLiATiON (CONTINUED)

ASX	Principles	Reference
Principle 7 – Recognise and manage risk		Page 17
7.1	The board of a listed entity should:	7.1
	(a) have a committee or committees to oversee risk, each of which:
	i. has at least three members, a majority of whom are independent directors, and
	ii. is chaired by an independent director, and disclose
	iii. the charter of the committee
	iv. the members of the committee, and
	v. as at the end of each reporting period, the number of times the committee met throughout the
	period and the individual attendances of the members at those meetings, or
	(b) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the
	processes it employs for overseeing the entity’s risk management framework
7.2	The board or a committee of the board should:	7.1 and 7.2
	(a) review the entity’s risk management framework at least annually to satisfy itself that it continues to be
	sound, and
	(b) disclose, in relation to each reporting period, whether such a review has taken place
7.3	A listed entity should disclose:	7.3
	(a) if it has an internal audit function, how the function is structured and what role it performs, or
	(b) if it does not have an internal audit function, that fact and the processes it employs for evaluating
	and continually improving the effectiveness of its risk management and internal control processes
7.4	A listed entity should disclose whether it has any material exposure to economic, environmental and social	7.2
	sustainability risks and, if it does, how it manages or intends to manage those risks.
Principle 8 – Remunerate fairly and responsibly		Page 17
8.1	The board of a listed entity should:	8.1
	(a) have a remuneration committee which:
	(1) has at least three members, a majority of whom are independent directors, and
	(2) is chaired by an independent director, and disclose
	(3) the charter of the committee
	(4) the members of the committee, and
	(5) as at the end of each reporting period, the number of times the committee met throughout the
	period and the individual attendances of the members at those meetings, or
	(b) if it does not have a remuneration committee, disclose that fact and the processes it employs for
	setting the level and composition of remuneration for directors and senior executives and ensuring
	that such remuneration is appropriate and not excessive
8.2	A listed entity should separately disclose its policies and practices regarding the remuneration of	Remuneration
	non-executive directors and the remuneration of executive directors and other senior executives.	Report
8.3	A listed entity which has an equity-based remuneration scheme should:	Remuneration
	(a) have a policy on whether participants are permitted to enter into transactions (whether through the	Report
	use of derivatives or otherwise) which limit the economic risk of participating in the scheme, and
	(b) disclose that policy or a summary of it

DEXUS Funds Management Limited (DXFM) is the Responsible Entity of each of the four Trusts that comprise DEXUS Property Group (DEXUS). DXFM is also responsible for management of the Group’s third party funds.

The Board implements a corporate governance framework that applies to all DXFM funds, the DEXUS Wholesale Property Fund (DWPF), capital partner investments and mandates.

The Board has determined that good corporate governance supports:

§ a culture of ethical behaviour resulting in an organisation that acts with integrity
§ improved decision making processes
§ better controls and risk management
§ improved relationships with stakeholders
§ accountability and transparency

The framework meets the requirements of the ASX Corporate Governance Principles and Recommendations (third edition) (ASX Principles), and addresses additional aspects of governance which the Board considers important. To assist stakeholders in accessing key documents outlining our approach to corporate governance, DEXUS maintains a Corporate Governance page on its website www.dexus.com/corporategovernance. The website is updated throughout the year, as policies and procedures are reviewed.

2015 dexus annual rePOrT 9

PRiNCiPLE 1 – LAy SOLiD FOUNDATiONS FOR MANAgEMENT AND OvERSighT

1.1 Roles and responsibilities

As DEXUS comprises four real estate investment trusts, its corporate governance practices satisfy the requirements relevant to unit trusts. The Board has determined that the governance framework will also meet the highest standards of a publicly listed company. This includes the convening of an Annual General Meeting, the appointment of directors by DEXUS security holders and their consideration of its remuneration report.

1.2 Board responsibilities

The framework ensures accountability and a balance of authority by defining the respective roles and responsibilities of the Board and executive management (as outlined in the Terms of Reference for the Board and the Group Management Committee). This enables the Board to maintain a focus of strategic guidance while exercising effective oversight.

Terms of Reference for the Board and its delegated Committees are available at www.dexus.com/boardcommittees

The Board’s responsibilities include (but are not limited to):

§ Determining strategy, including reviewing and approving DEXUS’s business objectives and strategies to achieve them. These objectives inform the setting of performance targets for the Chief Executive Officer and the Group Management Committee members. Performance against these objectives is reviewed by the Board People & Remuneration Committee and is a primary input to the remuneration review of Group Management Committee members

1.4 Company Secretaries

Company Secretaries play an important role in supporting the effectiveness of the Board and Board Committees. Company Secretaries are responsible for ensuring the smooth running of the Boards and Board Committees and governance matters are appropriately addressed. They are accountable directly to the CEO, the Chair of the Board and the Chairs of the Board Committees on all matters relating to the proper functioning of the Board and its Committees.

All directors have direct access to the Company Secretaries for guidance and assistance.

1.5 Group Management Committee responsibilities

The Board has appointed a Group Management Committee responsible for achieving DEXUS’s goals and objectives, including the prudent financial and risk management of the Group. The Group Management Committee generally meets weekly.

Members of the Group Management Committee during 2015 were:

§ Chief Executive Officer & Executive Director
§ Deputy Chief Financial Officer*
§ Executive Director Finance & Chief Operating Officer
§ Executive General Manager, Investor Relations, Marketing & Communications
§ Executive General Manager, Office & Industrial
§ Executive General Manager, People & Property Services
§ Executive General Manager, Strategy, Transactions & Research
§ General Counsel & Company Secretary
The Deputy Chief Financial Officer commenced employment at DEXUS on 12 January 2015.
§ Approving the annual business plan
§ Approving periodic market guidance

PRiNCiPLE 2 – STRUCTURE ThE bOARD TO ADD vALUE

§ Approving the financial statements and disclosures
§ Approving significant acquisitions and divestments and major developments
§ Ensuring that DEXUS has in place an appropriate Risk Management Framework (including a Risk Appetite Statement) to support the company’s risk policies
§ Ensuring that DEXUS’s fiduciary and statutory obligations to stakeholders (including third party clients, and capital partners) are met

2.1 DEXUS corporate governance structure

During 2014, DEXUS undertook a detailed review of its Committee structure, analysing the existing structure against the ASX Principles and best practice. It resulted in the implementation of a streamlined Board Committee structure from 1 September 2014 with the following Committees established to support the Board in discharging its responsibilities:

§ Board Audit Committee
§ Board Nomination Committee

The Board is also responsible for appointing and removing the Chief Executive Officer and Company Secretaries, ratifying the appointment of the Executive Director, Finance & Chief Operating Officer and monitoring the performance of the Group Management Committee.

1.3 The Role of the Chair

The role and responsibility of the Chair includes leading the Board, facilitating the effective contribution of all directors, and promoting constructive and respectful relations between directors and between the Board and management. The Chair is also responsible for promoting the interests of the Group to its security holders and regulators.

The Chair of the DXFM Board, Chris Beare, is a Non-Executive Director. Mr Beare is also Chair of FlexiGroup Limited. The Board is satisfied that Mr Beare commits the appropriate time necessary to serve the DXFM Board and DEXUS.

§ Board People & Remuneration Committee
§ Board Risk Committee

Board Committee membership and responsibilities are revised regularly to ensure maximum effectiveness. The Terms of Reference for the DEXUS Board and the Board Committees are reviewed at least annually.

Non-Executive Directors have a standing invitation to attend any or all Board Committee meetings. Each Board Committee meeting has a standing agenda item to identify improvements to reporting or processes that would benefit the Committee, as well as any items that require immediate reference to the Board or a regulator (where applicable).

Corporate Governance Statement Continued

PRiNCiPLE 2 – STRUCTURE ThE bOARD TO ADD vALUE (CONTINUED)

2.1 DEXUS corporate governance structure (continued)

The Board and Board Committees are supported by Management Committees.

==> picture [259 x 146] intentionally omitted <==

----- Start of picture text -----

Chris Beare
Chair
To lead and guide the Board
The Board
1 Non-executive Chair
6 Non-executive Directors
2 Executive Directors
To ensure that the fiduciary
and statutory obligations to its
Investors are met. Meets at least
eight times a year.
----- End of picture text -----

Board Risk Committee Board Audit Committee Board Nomination Committee T Dwyer (Chair) R Sheppard (Chair) C Beare (Chair) 4 Non-executive Directors 4 Non-executive Directors 3 Non-executive Directors To assist the Board, DWPL and To assist the Board in fulfilling To assist the Board in fulfilling its DEXUS’s third party clients and its responsibilities by reviewing responsibilities by overseeing all capital partners in fulfilling their the integrity and quality of the aspects of the Board nomination responsibilities as they relate Group’s financial statements and and performance evaluation. to risk management (including disclosures including auditing, Meets at least twice a year. Work, Health & Safety), accounting and financial compliance management, reporting processes. Meets at internal audit, and sustainability least four times a year. practices and procedures. Meets at least four times a year. Group Management Committee D Steinberg (Chair) 1 CEO & Executive Director 1 Exec. Director Finance & COO 6 Executive General Managers To ensure that the financial and human resources of DXFM are efficiently and effectively employed in the achievement of its operational and strategic objectives. Meets weekly, or as required.

Board People & Remuneration Committee J Conde (Chair) 3 Non-executive Directors To assist the Board in fulfilling its responsibilities by overseeing all aspects of Director, Group Management Committee (‘GMC’) and Key Management Personnel remuneration and also oversees aspects of human resources management. Meets at least four times a year.

Management Committees Group Management Committee Capital Markets Committee Compliance, Risk & Sustainability Committee Continuous Disclosure Committee Corporate Responsibility, Inclusion & Diversity Committee Innovation Committee Investment Committee Project Prioritisation Committee

2015 dexus annual rePOrT 11

Board skills matrix

The Board Nomination Committee is responsible for reviewing the size, composition, diversity, skill and desired competencies of the Board and Board Committees (and recommending approval by the Board).

The Committee has identified the skills and expertise deemed necessary for the Board to fulfil its obligations.

The following table outlines the required skills and expertise that the DEXUS Board should possess.

Areas of skills & expertise

LEADERSHIP

§ Directorship experience (past & present)
§ Senior management experience (past & present)

CAPITAL & FUNDS MANAGEMENT

§ Experience in the dynamics of raising capital and investment banking
§ Experience in the management of third party funds

FINANCE & ACCOUNTING

§ Experience in analysing accounting material & financial statements and assessing financial viability
§ Experience in understanding financial drivers/funding and business models

GOVERNANCE

§ Experience with corporate governance and standards of complex organisations
§ Ability to assess and commitment to ensure the effectiveness of governance structures

PEOPLE MANAGEMENT & REMUNERATION

§ Ability to manage people and influence organisational culture
§ Experience in relation to remuneration and the legislation/framework governing remuneration

PROPERTY EXPERIENCE (INCLUDING DEVELOPMENTS)

§ Experience and industry knowledge in the management of properties including property development
§ Understanding of stakeholder needs and industry trends

RISK MANAGEMENT

§ Experience in managing areas of major risk to the organisation
§ Experience in workplace health & safety, environmental & community, social responsibility and technology matters affecting organisations

STRATEGY

§ Experience in mergers & acquisitions activities
§ Ability to guide and review strategy through constructive questioning and suggestions
§ Experience in developments and successful implementation of strategy

The Board has also determined that director tenure and diversity is integral to a well functioning board.

Details on the skills and qualifications of our directors are provided on pages 4 and 5 of this report.

The Board has reviewed the skills of the current directors against the skill categories in the table above and has determined that the current composition of the Board meets or exceeds the minimum requirements in each category.

2.2 Size and tenure

DEXUS has determined that the size of the Board should be small enough to be able to act quickly, but large enough to ensure a diverse range

of views is provided on any issue.

At 30 June 2015, the Board comprised nine members including seven Non-Executive Directors, the Chief Executive Officer and the Executive Director Finance & COO. The DXFM constitution allows for the appointment of up to 10 directors.

Details of directors at 30 June 2015 are:

name	Independent	Qualifcations	Date appointed
Chris Beare (Chair)	Yes	BSc, BE (Hons), MBA, PhD, FAICD	Director and Chair since 4 August 2004
Elizabeth Alexander AM	Yes	BComm, FCA, FAICD, FCPA	Director since 1 January 2005
Penny Bingham-Hall	Yes	BA (Industrial Design), FAICD, SF (Fin)	Director since 10 June 2014
John Conde AO	Yes	BSc, BE (Hons), MBA	Director since 29 April 2009
Tonianne Dwyer	Yes	BJuris (Hons), LLB (Hons)	Director since 24 August 2011
Craig Mitchell	No	BComm, MBA (Exec), FCPA, HBS (AMP)	Appointed Executive Director on 12 February 2013
Richard Sheppard	Yes	BEc Hons, FAICD	Director since 1 January 2012
Peter St George	Yes	CA(SA), MBA	Director since 29 April 2009
Darren Steinberg	No	BEc, FAICD, FRICS, FAPI	Appointed Executive Director on 1 March 2012

Corporate Governance Statement Continued

PRiNCiPLE 2 – STRUCTURE ThE bOARD TO ADD vALUE (CONTINUED)

2.2 Size and tenure (continued)

==> picture [257 x 155] intentionally omitted <==

----- Start of picture text -----

Professional
Qualifications Tenure
Science 13% 0-3 years 23%
Economics 25% 3-6 years 33%
Commerce/Accounting 25% 6-9 years 22%
MBA 25% 9+ years 22%
Law 6%
Other 6%
----- End of picture text -----

==> picture [101 x 123] intentionally omitted <==

----- Start of picture text -----

Diversity
Men 67%
Women 33%
----- End of picture text -----

2.3 Board independence

Non-Executive Directors must be free of any business or other relationship that could interfere materially with the exercise of their unfettered and independent judgement.

The Board has determined that each Non-Executive Director:

§ Is not a substantial security holder of DEXUS, nor otherwise associated with a substantial security holder of DEXUS
§ Is not employed, nor within the last three years has been employed, in an executive capacity by DEXUS (there must be a period of at least three years between ceasing such employment and serving on the Board)
§ Has not been, within the last three years, a principal or an employee of a material professional adviser or a material consultant to DEXUS
§ Has not been a material supplier or customer of DEXUS, or otherwise associated with a material supplier or customer
§ Has no material contractual relationship with DEXUS (other than as a Non-Executive Director of DEXUS)
§ Has not served on the Board for a period which could, or could reasonably be perceived to, interfere materially with the director’s ability to act in the best interests of DEXUS
§ Is free from any interest and any business or other relationship which could, or could reasonably be perceived to, interfere with the director’s ability to act in the best interests of DEXUS, and
§ Is free from family ties or cross-directorships that may compromise director independence

The Board regularly assesses the independence of its directors in light of interests disclosed to it and has determined that each Non-Executive Director has maintained independence throughout the year.

2.4 Appointment of directors

While directors of the Responsible Entity are not technically subject to the approval of security holders, the Board has determined that all directors, other than the Chief Executive Officer, will stand for election by DEXUS stapled security holders. If a nominated director fails to receive a majority vote, that director will cease to be appointed to the Board of DXFM.

DXFM directors, other than the Chief Executive Officer, will hold office for three years following his or her first appointment (or, if appointed by the Board between DEXUS Annual General Meetings, from the date of the Annual General Meeting after the initial appointment).

At the time of appointment, each Non-Executive Director is required to sign a letter of appointment which sets out terms and conditions. The letter defines the term of office, independence, role and responsibilities of the director.

Executive Directors and other members of the Group Management Committee are also required to enter into an employment agreement setting out their terms of employment.

The Induction Program for newly appointed directors is comprehensive and includes familiarisation with specific structures, policies and legal documents including (but not limited to):

§ Outline of the Corporate and Committee structure
§ Organisational charts providing details of business units
§ Terms of Reference for the Board and Board Committees
§ Minutes of the previous Board and Board Committee meetings
§ A copy of the Constitution
§ A copy of the business plan
§ DEXUS Compliance Management Framework
§ DEXUS Risk Management Framework
§ Key DEXUS policies including:
Directors’ Code of Conduct
Securities Trading (including inside information) Policy
Continuous Disclosure Policy

A newly appointed Non-Executive Director will meet with key managers who provide an overview of their areas of responsibility. Newly appointed Non-Executive Directors are encouraged to attend each of the Board Committee meetings to assist in understanding the DEXUS business model and approach to corporate governance.

Background checks of newly appointed Non-Executive Directors are performed which include:

§ National Police Check
§ ASIC Banned and Disqualified Register check
§ ASIC Authorised Representative search

2015 dexus annual rePOrT 13

§ ASIC Enforceable Undertaking Register search
§ APRA Disqualified Register check
§ Directorships check
§ AML/CTF Global Official Lists check (sanctions list)
§ Public Record check
§ Academic Qualification check
§ Employment history check
§ Bankruptcy Record check

The process for selecting and appointing new directors to the Board can be found at www.dexus.com/appointment

2.5 Meetings

The Board generally meets monthly between February and November, with additional meetings held throughout the year as required. A Board Calendar is developed and agreed six months ahead of the new calendar year. The calendar provides dates of Board and Board Committee meetings.

Board meetings are normally held at the registered office of DEXUS, although some meetings may be held ‘offsite’ allowing directors to visit DEXUS owned and managed properties. To maximise participation, video conferencing facilities are utilised as required.

Each standard Board meeting includes a Non-Executive Director only session, led by the Chair, followed by a session in which the Executive Directors join the board. The remaining members of the Group Management Committee and Company Secretary then join the meeting.

Senior management is also available to provide clarification or answer questions directors may have either prior to the Board meeting or may be invited to attend and present at the Board meeting.

2.6 Access to training and information

Directors receive regular presentations by management and external advisers regarding sector, fund, and industry specific trends. Non-Executive Directors are encouraged to seek additional information from management as necessary.

Non-Executive Directors also attend property tours and are encouraged to pursue professional development opportunities at the Group’s expense.

Should a Non-Executive Director wish to seek independent professional advice that they believe is necessary to discharge their responsibility as a director, the matter should initially be referred to the Chair. Where the Chair determines it is appropriate that advice be sought by the Non-Executive Director, DEXUS will pay for such advice. Where the Chair seeks independent professional advice, approval is required by a majority of the Non-Executive Directors.

2.7 Membership on other Boards

The Board acknowledges that concurrent service on multiple boards by DEXUS directors may impact their overall performance and ability to devote adequate time to each board/position. The Board recognises that the time required to fulfil each directorship role varies and as a result, has determined that it is not appropriate to set a limit on the total number of directorships held.

Directors will consider the number of directorships they hold to ensure they have sufficient time to attend to the affairs of DEXUS Property Group. Should a director wish to accept directorships in addition to those already held, the matter is referred to the Chair of the DXFM Board for approval.

2.8 Board Nomination Committee

The Board Nomination Committee oversees all aspects of:

Board papers are provided to directors electronically at least three business days prior to the meeting.

Any Action Items identified by the directors are recorded in the minutes. The Company Secretary ensures that the Action Items are appropriately addressed.

Agenda items for Board meetings are set by the Chair in conjunction with the Chief Executive Officer and Company Secretary and include (but are not limited to):

§ Chief Executive Officer’s report
§ Company Secretary’s report
§ Minutes of Board Committee meetings
§ Board renewal
§ Board and Board Committee performance evaluation
§ Director nominations

The Committee comprises three Non-Executive Directors:

§ Chris Beare, Chair, Non-Executive Director (Chair)
§ John Conde AO, Non-Executive Director
§ Richard Sheppard, Non-Executive Director

The Chief Executive Officer and Executive General Manager, People & Property Services attend the Board Nomination Committee meeting by invitation.

§ Reports on asset acquisitions, disposals and developments
§ Management presentations
§ Other business where directors can raise any topical matters

Some of the key issues addressed by the Board during 2015 include the:

§ One-for-six security consolidation
§ Continued oversight of capital management
§ Acquisition and disposal of office and industrial properties
§ Institutional placement of Share Purchase Plan
§ Work Health Safety (WHS) policies and practices

Directors are expected to use their best endeavours to attend all scheduled meetings. For the year to 30 June 2015, there was 100% attendance of Non-Executive Directors at all Board and Board Committee meetings (for which they are a member).

2.9 Performance

The Board Nomination Committee oversees a three year Board performance evaluation cycle in which Board and Board Committee performance is evaluated in the first year and individual director performance in the next. Every third year, an independent consultant is engaged to facilitate the Board performance review. Any areas for improvement identified in the performance evaluation process are agreed by the Board Nomination Committee which oversees the implementation of process enhancements.

In 2015, directors were asked to provide feedback on the function of the Board and its Committees, structure of Board meetings and the role of the Chair of the Board and Board Committees. Feedback from the anonymously completed questionnaires was co-ordinated by the Company Secretary and provided to the Board Nomination Committee for discussion.

The process for Board performance evaluation can be found at www.dexus.com/corporategovernance

Corporate Governance Statement Continued

PRiNCiPLE 3 – ACT EThiCALLy AND RESPONSibLy

3.1 Codes of Conduct

To meet statutory and fiduciary obligations (including those relating to the management of third party funds and capital partners) and to maintain confidence in its integrity, the Board implements a series of clearly articulated policies and procedures to which all employees must adhere. These policies are reviewed at least annually:

§ The Board considers it important that all employees meet the highest ethical and professional standards and has established an Employee Code of Conduct and a Directors’ Code of Conduct. Any alleged breach of the Codes of Conduct is investigated. A significant breach may result in termination of employment
§ DEXUS’s Anti-Bribery policy addresses the acceptance and granting of gifts and benefits and reinforces the Group’s commitment not to donate to political parties
§ The Group strongly supports the identification and disclosure of corrupt conduct, illegality or substantial waste of company assets under its Good Faith Reporting Policy. Employees who make such disclosures are protected from any detrimental action or reprisal, and an independent external disclosure management service provider has been appointed to ensure anonymity for those reporting incidents

All employees are required to confirm, on an annual basis, compliance with key DEXUS policies. In 2015, employees were asked to confirm ongoing compliance with policies addressing:

§ Code of Conduct

3.3 Non-Executive Director holdings in DXS

On 26 November 2014, the Board approved the policy that the minimum holding by each Non-Executive Director be set at 16,500 securities by 29 October 2017. Newly appointed Non-Executive Directors should hold 16,500 securities within three years of appointment.

At 30 June 2015, Non-Executive Directors’ holdings in DEXUS were as follows:

	Chris Beare (Chair) Elizabeth Alexander AM	16,667 16,667
	Penny Bingham-Hall (appointed 10 June 2014) John Conde AO Tonianne Dwyer	8,334 16,667 16,667
	Richard Sheppard	70,090
	Peter St George	17,333

At 1 July 2015, Darren Steinberg (Executive Director) has been awarded the following:

§ Performance Rights granted under the 2014 STI Rights Plan giving the right to 32,179 securities
§ Performance Rights granted under the 2013 LTI Rights Plan giving the right to 188,029 securities
§ Performance Rights granted under the 2014 LTI Rights Plan giving the right to 205,943 securities
§ 195,164 securities
§ Compliance Incidents
§ Good Faith Reporting
§ Conflicts of Interest (Personal and Business), and
§ Securities Trading (including inside information)

DEXUS Board and Corporate Policies are available at www.dexus.com/corporategovernance

3.2 Trading in DEXUS securities

The Group’s Securities Trading (including inside information) Policy applies to directors and employees who wish to invest in DEXUS securities for themselves or on behalf of an associate.

The policy requires any Non-Executive Director who wishes to trade in DEXUS securities to obtain approval from the Chair and General Counsel/Company Secretary. Should the Chair wish to trade in DEXUS securities, approval is required from a Non-Executive Director and General Counsel/Company Secretary.

Employees wishing to trade in DEXUS securities must obtain written approval from the Chief Executive Officer and General Manager, Compliance, Risk & Governance/Company Secretary before entering into a transaction.

Non-Executive Directors and employees are permitted to trade DEXUS securities only in defined trading windows, provided approval has been granted and only if they are not in possession of inside information.

In the event that the Chair, Chief Executive Officer or General Counsel considers that there is the potential that inside information may be held or that a significant conflict of interest may arise, trading will not be permitted, even during defined trading windows.

The Securities Trading Policy is available at www.dexus.com/corporategovernance

At 1 July 2015, Craig Mitchell (Executive Director) has been awarded the following:

§ Performance Rights granted under the 2014 STI Rights Plan giving the right to 17,836 securities
§ Performance Rights granted under the 2013 LTI Rights Plan giving the right to 59,253 securities
§ Performance rights granted under the 2014 LTI Rights Plan giving the right to 85,503 securities
§ 153,995 securities

Dealings in DXS securities by directors are reported to the ASX within five business days of the transaction.

The Board is considering introducing a minimum security holding requirement for Executive Key Management Personnel once an appropriate vested equity position has been achieved through the Deferred STI and LTI plans which were first introduced in 2012.

3.4 Conflicts of interest and related party dealings

The Group’s Conflict of Interest policies address the management of conflicts of interest and related party transactions which may arise:

§ When allocating property transactions; where a new property acquisition opportunity meets the mandate of more than one DEXUS client (including DXS)
§ When negotiating leases; where a prospective tenant is interested in more than one property owned by different DEXUS clients
§ When executing transactions between DEXUS clients
§ When the personal interests of an employee or director conflict with those of DEXUS or its clients

Where a conflict of interest is identified, the Compliance, Risk & Governance team liaises with the business representatives to ensure effective and timely management of the conflict. Where information barriers are put in place, the team monitors compliance with the relevant policies.

2015 dexus annual rePOrT 15

On a monthly basis, the General Counsel reports to the Board on related party transactions and the General Manager, Compliance, Risk & Governance reports conflicts of interest to the Board Risk Committee each quarter.

Leasing Conflicts of Interests that have been identified and managed during the quarter are reported to:

§ Group Management Committee
§ Compliance, Risk & Sustainability Committee
§ Board Risk Committee
§ Relevant capital partners and mandates

Where there is an actual, potential or perceived conflict of interest between the personal interests of a director and the duties the director owes to DEXUS, the director is required to disclose the circumstances to the Chair for determination as to the most appropriate method in which to manage the conflict.

A director with an actual, potential or perceived conflict in relation to a matter before the Board will be excluded from attending that part of the Board meeting. Papers or minutes in relation to the matter will not be provided to the director.

During 2015, the Conflicts of Interest policies and procedures (as they relate to allocation of property transactions and leasing transactions) were subject to an independent, external review. The Compliance team also facilitated refresher Conflicts of Interest training for DEXUS employees. Successful completion of all compliance training is compulsory.

3.5 Responsible investment

DEXUS’s Environmental Management Policy aims to minimise the overall environmental impact of its operations, both in the development of new properties and the management of existing properties. As a signatory to the United Nations Principles of Responsible Investment (UNPRI), DEXUS incorporates these principles into its investment decisions.

3.6 Diversity

DEXUS comprises a socially and culturally diverse workplace and has created a culture that is tolerant, flexible and adaptive to the changing needs of its industry. DEXUS is committed to diversity and promotes a work environment conducive to the merit-based appointment of qualified employees, senior management and directors. Where professional intermediaries are used to identify or assess candidates, they are made aware of DEXUS’s commitment to diversity.

During 2015, the Corporate Responsibility, Inclusion & Diversity Committee, chaired by the Chief Executive Officer, continued to promote and encourage a work environment where diversity is understood and valued.

DEXUS currently publishes annual statistics on the diversity profile of its Board and senior management, including a breakdown of the type and seniority of roles undertaken by women. DEXUS acknowledges and fulfils its obligations under relevant employment legislation including Workplace Gender Equality Act 2012.

The DEXUS gender diversity target by 30 June 2015 was set at 33% of Non-Executive Directors to be held by women and 33% of senior management roles to be held by women.

As at 30 June 2015, DEXUS’s workforce profile places women at 43% of Non-Executive Directors and 26% senior manager roles. Women represent 48% of DEXUS’s employees.

DEXUS’s definitions of ‘Senior Management’ and ‘Measurable Objectives’ are disclosed in its Diversity Target which is available at www.dexus.com/corporategovernance

DEXUS undertakes Gender Pay Equity audits to gain insight into the effectiveness of its Diversity Principles and to review its position on diversity both internally and against external benchmarks.

The results of this year’s audit were presented to the Group Management Committee as part of a new calibration process at the end of the annual DEXUS Compensation Review.

DEXUS’s Diversity Principles are available at www.dexus.com/corporategovernance

PRiNCiPLE 4 – SAFEgUARD iNTEgRiTy iN CORPORATE REPORTiNg

4.1 Board Audit Committee

To ensure the accurate presentation of each Trust’s financial position, DXFM has in place a structure of review and authorisation, where the Board Audit Committee reviews (among other matters):

§ Financial statements of each entity
§ Independence and competence of the external auditor
§ Semi-annual management representations to the Committee, affirming the veracity of each entity’s Financial Statements

The Committee’s Terms of Reference require that all members are Non-Executive Directors with financial expertise and an understanding of the industry in which DEXUS operates. The Committee:

§ Has access to management
§ Has unrestricted access to external auditors without management present
§ Has the opportunity to seek explanations and additional information as it sees fit
§ May also obtain independent professional advice in the satisfaction of its duties at the cost of the Group and independent of management

The Committee meets as frequently as required to undertake its role effectively, but not less than four times a year, and the external auditor is invited to attend all meetings.

From 1 July to 31 August 2014, the members of the Committee were:

§ Richard Sheppard, Chair, Non-Executive Director
§ Elizabeth Alexander AM, Non-Executive Director
§ Chris Beare, Non-Executive Director

Following the implementation of a streamlined Board Committee structure from 1 September, the members of the Committee for the 10 months ending 30 June 2015 were:

§ Richard Sheppard, Chair, Non-Executive Director
§ Elizabeth Alexander AM, Non-Executive Director
§ Tonianne Dwyer, Non-Executive Director
§ Peter St George, Non-Executive Director

The following reports are provided to the Committee:

§ The Chief Executive Officer and the Executive Director Finance & COO make representations on a semi-annual basis on the veracity of the Financial Statements and financial risk management systems
§ The Compliance, Risk & Sustainability Committee completes a fraud risk questionnaire semi-annually to advise of any instances of actual or perceived fraud during the period

PricewaterhouseCoopers (PwC) continues as statutory auditor of DXFM and its related trusts and entities.

In order to ensure the independence of the statutory auditor, the Committee has responsibility for approving the engagement of the auditor for any non-audit service greater than $100,000. At 30 June 2015, fees paid to the external auditor for non-audit services were 11.3% of audit fees (25.5% at 30 June 2014).

DEXUS’s policy on the selection and appointment of the external auditor is available at www.dexus.com/corporategovernance

Corporate Governance Statement Continued

PRiNCiPLE 5 – MAkE TiMELy AND bALANCED DiSCLOSURE

5.1 Continuous disclosure

To ensure continuous disclosure obligations are met, DEXUS has the following processes and procedures in place:

§ Ongoing education of managers and directors ensuring all parties clearly understand the ASX Listing Rule obligations and the consequences of a breach
§ Efficient reporting channels capturing potential information requiring disclosure and bringing it to the immediate attention of the Chief Executive Officer or the General Counsel
§ An effective monitoring system which helps ensure ongoing compliance
§ A clear and concise policy outlining obligations and expectations of our employees in the identification and management of matters that may require disclosure to the market. The policy was subject to an independent external review during 2015 to ensure it reflects regulatory requirements and industry best practice

DEXUS has established a Continuous Disclosure Committee to assist in the identification and reporting of material matters to the market in the spirit of legislation and regulations.

Committee members comprise:

§ General Counsel & Company Secretary (Chair)
§ Chief Executive Officer
§ Executive Director Finance & COO
§ EGM – Investor Relations, Marketing & Communications
§ EGM – Strategy, Transactions & Research

The Committee meets on a regular basis to consider whether any disclosure obligation is likely to arise as a result of the activities being undertaken by the Group. The Committee is comprised of executives based at DEXUS’s corporate head office allowing meetings to be held at short notice.

The Continuous Disclosure Committee ensures:

§ Investors continue to have equal and timely access to material information, including the financial status, performance, ownership and governance of the Trusts
§ Announcements are factual and presented in a clear and balanced way

Management is required to provide a quarterly attestation to the Compliance, Risk & Governance team that there have been no issues within their area of responsibility that would be subject to continuous disclosure requirements.

The Chief Executive Officer and/or General Counsel will immediately notify the Chair of the DXFM Board should any material concern arise regarding continuous disclosure. The Chair will then decide whether the issue should be further referred to the full Board or a nominated board Sub-Committee prior to any market release, if considered appropriate, is made.

The DXFM Board has a standing Agenda Item for it to assess if there are any matters that should be disclosed to the market.

The Continuous Disclosure Policy is available at www.dexus.com/corporategovernance

PRiNCiPLE 6 – RESPECT ThE RighTS OF SECURiTy hOLDERS

6.1 Annual General Meeting

The Board conducts an Annual General Meeting (AGM) increasing the number of opportunities it has to interact with DEXUS security holders.

Each AGM is designed to:

§ Supplement effective communication with security holders
§ Provide them with ready access to balanced and readily understandable information
§ Increase the opportunities for participation
§ Facilitate security holders’ rights to appoint Non-Executive Directors to the Board of DXFM

DEXUS recognises the importance of security holder participation at the AGM and supports and encourages that participation.

The Group’s policy is that all directors attend the AGM, and in 2014 all directors attended the AGM.

The external auditor of the Trusts attends each AGM and is available to answer investor questions regarding the conduct of the audits of the Trusts’ financial records and their Compliance Plans, as well as the preparation and content of the Auditor’s Report.

DEXUS engages an independent service provider, Link Market Services, to conduct any security holder vote required at the AGM. To facilitate participation, the AGM is webcast live and archived for viewing on DEXUS’s website for those security holders unable to attend the meeting. The results of voting on the items for the formal business of the meeting are released to the market and posted to DEXUS’s website after the AGM.

6.2 Stakeholder communication

In addition to conducting an AGM, the Group has an investor relations and communications strategy that promotes an informed market and encourages participation with investors. This strategy involves providing an open and ongoing two-way dialogue with the investment community and other key stakeholders that integrates the communication of financial and operational performance, marketing and regulatory reporting requirements.

Annual and half-year financial results presentation briefings with institutional investors and analysts are webcast and made available to all investors on DEXUS’s website.

DEXUS’s website enables access to all ASX announcements and media releases, annual and half year reviews, annual reports, presentations and analyst support material. Investors can subscribe to alerts from the website to receive DEXUS communications immediately after release. The website also provides historical distribution and tax information and includes a security holder login section to enable security holders to update their details directly and download statements from Link Market Services.

DEXUS maintains an Investor Relations app available for iPhone, iPad and Android users that provides security holders with instant access to corporate and stock information such as recent announcements, results reporting and research reports. DEXUS has a corporate company page on LinkedIn which enables it to ‘push’ news stories and ASX releases to its large network of DEXUS followers.

Any enquiries received from security holders are addressed in a timely manner in accordance with DEXUS’s policy on handling of enquiries and complaints.

The Communications Policy is available at www.dexus.com/corporategovernance

2015 dexus annual rePOrT 17

PRiNCiPLE 7 – RECOgNiSE AND MANAgE RiSk

7.1 Board Risk Committee

The Board Risk Committee oversees risk management within DEXUS. The Committee oversees the Group’s enterprise risk management practices, as well as work health & safety, environmental management, sustainability initiatives, compliance and internal audit practices. It also oversees the effectiveness of the Group’s Risk Management Framework and Compliance Management Framework.

The Risk Management Framework is subject to annual review. The continuing evolution of a Risk Appetite Statement will result in further enhancements to the Risk Management Framework.

DEXUS’s Risk Management Policy is available at www.dexus.com/corporategovernance

Members of the Committee from 1 July to 31 August 2014 were:

§ Richard Sheppard, Chair, Non-Executive Director
§ Elizabeth Alexander AM, Non-Executive Director
§ Chris Beare, Non-Executive Director

Following the implementation of a streamlined Board Committee structure from 1 September, the members of the Committee for the 10 months ending 30 June 2015 increased to four Non-Executive Directors:

§ Tonianne Dwyer, Chair, Non-Executive Director
§ Penny Bingham-Hall, Non-Executive Director
§ Richard Sheppard, Non-Executive Director
Peter St George, Non-Executive Director
§

While most risks are identified, managed and monitored internally, DEXUS has appointed independent experts to undertake monitoring of health and safety, environmental risks and other risks where expert knowledge is essential to ensure DEXUS has in place best practice processes and procedures.

The Committee is empowered to engage consultants, advisers or other experts independent of management.

7.2 Risk management

The management of risk is an important aspect of DEXUS’s activities, and the Group has a segregated risk function reporting to the General Counsel on a day-to-day basis, as well as a Compliance, Risk & Sustainability Committee that supports the Board Risk Committee.

The General Manager, Compliance, Risk & Governance has direct access to the Chief Executive Officer and Non-Executive Directors.

Risks to DEXUS arise from both internal and external factors and include:

§ Strategic risks
§ Market risks
§ Health and safety risks
§ Operational risks
§ Environmental risks
§ Financial risks
§ Regulatory risks

The Compliance, Risk & Governance team promotes an effective risk and compliance culture by providing advice, drafting and updating relevant risk and compliance policies and procedures, conducting training and monitoring and reporting adherence to key policies and procedures.

Frameworks have been developed and implemented in accordance with ISO 31000:2009 (Risk Management) and AS 3806:2006 (Compliance Programs).

The functions of the Compliance, Risk & Governance team include risk and compliance management, corporate governance and internal audit. The ongoing effectiveness of the risk management, compliance management and internal control systems is reported by the General Manager, Compliance, Risk & Governance to the Board Risk Committee.

DEXUS’s internal control procedures are also subject to annual independent verification as part of the GS007 (Audit Implications of the Use of Service Organisations for Investment Management Services) audit.

During 2015, the Board Risk Committee also focused on:

§ The formalisation of DEXUS’s Risk Appetite Statement
§ Security risk management at head office and across the portfolio as a result of the heightened terrorist alert announced by Australian National Security
§ Work health and safety acknowledging both physical and mental health
§ Identification and management of conflicts of interest

7.3 Internal audit

The internal audit program has a three year cycle, the results of which are reported quarterly to the Compliance, Risk & Sustainability Committee and to the Board Risk Committee.

DEXUS has appointed Ernst & Young to perform the internal audit program. An Ernst & Young partner attends each Board Risk Committee to present findings of internal audits undertaken during the quarter.

PRiNCiPLE 8 – REMUNERATE FAiRLy AND RESPONSibLy

8.1 Board People & Remuneration Committee

The Board People & Remuneration Committee oversees all aspects of:

§ Director and Executive remuneration
§ Director, Chief Executive Officer, and management succession planning

The Committee comprises three Non-Executive Directors:

§ John Conde AO, Chair, Non-Executive Director
§ Chris Beare, Non-Executive Director
§ Penny Bingham-Hall, Non-Executive Director

The Chief Executive Officer and Executive General Manager, People & Property Services attend the Board People & Remuneration Committee meeting by invitation.

It is the practice of the Board People & Remuneration Committee to meet without executives, and non-committee members are not in attendance when their own performance or remuneration is discussed.

§ Reputational risks
§ Fraud risks

Further information relating to the identification and management of risks is available at page 44 of this report.

Details of the Group’s remuneration framework for Executives, Non-Executive Directors and employees are set out in the Remuneration Report that forms part of the Directors’ Report contained in this report commencing on page 19. There are no schemes for retirement benefits (other than compulsory contributions to superannuation) for Non-Executive Directors.

Directors’ report

The Directors of DEXUS Funds Management Limited (DXFM) as Responsible Entity of DEXUS Diversified Trust (DDF or the Trust) present their Directors’ Report together with the consolidated Financial Statements for the year ended 30 June 2015. The consolidated Financial Statements represent DDF and its consolidated entities, DEXUS Property Group (DXS or the Group).

The Trust together with DEXUS Industrial Trust (DIT), DEXUS Office Trust (DOT) and DEXUS Operations Trust (DXO) form the DEXUS Property Group stapled security.

1. DiRECTORS AND SECRETARiES

1.1 Directors

The following persons were Directors of DXFM at all times during the year and to the date of this Directors’ Report, unless otherwise stated:

Directors	Appointed
Christopher T Beare	4 August 2004
Elizabeth A Alexander, AM	1 January 2005
Penny Bingham-Hall John C Conde, AO	10 June 2014 29 April 2009
Tonianne Dwyer	24 August 2011
Craig D Mitchell	12 February 2013
W Richard Sheppard	1 January 2012
Darren J Steinberg Peter B St George	1 March 2012 29 April 2009

1.2 Company Secretaries

The names and details of the Company Secretaries of DXFM as at 30 June 2015 are as follows:

Brett D Cameron LLB/BA (Science & Technology), GAICD Appointed: 31 October 2014

Brett is the General Counsel and Company Secretary of DEXUS Property Group companies and is responsible for the legal function, company secretarial services and compliance, risk and governance systems and practices across the Group.

Prior to joining DEXUS, Brett was Head of Legal for Macquarie Real Estate (Asia) and has held senior legal positions at Macquarie Capital Funds in Hong Kong and Minter Ellison in Sydney and Hong Kong. Brett has 19 years’ experience as in-house counsel and in private practice in Australia and in Asia, where he worked on real estate structuring and operations, funds management, mergers and acquisitions, private equity and corporate finance across a number of industries.

Brett graduated from The University of New South Wales and holds a Bachelor of Laws and a Bachelor of Arts (Science and Technology) and is a member of the Law Societies of New South Wales and Hong Kong. Brett is also a graduate of the Australian Institute of Company Directors.

Scott D Mahony B Bus (Acc) MBA (e-commerce) Grad Dip (Applied Corporate Governance), AGIA, RMIA Appointed: 1 April 2014

Scott is the General Manager, Compliance, Risk and Governance and is responsible for the development, implementation and oversight of DEXUS’s compliance, property & corporate risk management and corporate governance programs.

Scott joined DEXUS in October 2005 after two years with Commonwealth Bank of Australia as a Senior Compliance Manager. Prior to this, Scott worked for over 11 years for Assure Services & Technology (part of AXA Asia Pacific) where he held various management roles.

Scott graduated from Charles Sturt University with a Bachelor of Business (Accountancy), a Graduate Diploma in Business Administration and an MBA. He has completed a Graduate Diploma in Applied Corporate Governance through the Governance Institute of Australia, and is a member of both the Risk Management Institution of Australasia and the Governance Institute of Australia.

2. ATTENDANCE OF DiRECTORS AT bOARD MEETiNgS AND bOARD COMMiTTEE MEETiNgS

The number of Directors’ meetings held during the year and each Director’s attendance at those meetings is set out in the table below. The Directors met 11 times during the year. Ten Board meetings were main meetings and one meeting was held to consider specific business.

	Main	Main	Specifc	Specifc
	meetings	meetings	meetings	meetings
	held	attended	held	attended
Christopher T Beare	10	10	1	1
Elizabeth A Alexander, AM	10	10	1	1
Penny Bingham-Hall	10	10	1	1
John C Conde, AO	10	10	1	1
Tonianne Dwyer	10	10	1	1
Craig D Mitchell	10	10	1	1
W Richard Sheppard	10	10	1	1
Darren J Steinberg	10	10	1	1
Peter B St George	10	10	1	1

2015 dexus annual rePOrT 19

Special meetings are held at a time to enable the maximum number of Directors to attend and are generally held to consider specific items that cannot be held over to the next scheduled main meeting.

During 2014, the Group undertook a detailed review of its Board Committee structure which resulted in the implementation of a streamlined Board Committee structure from 1 September 2014.

The table below sets out the number of Board Committee meetings held during the year for the Committees in place between 1 September 2014 and 30 June 2015 and each Director’s attendance at those meetings.

							Board	People &
	Board Audit		Board Risk		Board	nomination	Remuneration
	Committee		Committee		Committee		Committee
	held	attended	held	attended	held	attended	held	attended
Christopher T Beare	–	–	–	–	3	3	4	4
Elizabeth A Alexander, AM	3	3	–	–	–	–	–	–
Penny Bingham-Hall	–	–	4	4	–	–	4	4
John C Conde, AO	–	–	–	–	3	3	4	4
Tonianne Dwyer	3	3	4	4	–	–	–	–
Craig D Mitchell	–	–	–	–	–	–	–	–
W Richard Sheppard	3	3	4	4	3	3	–	–
Darren J Steinberg	–	–	–	–	–	–	–	–
Peter B St George	3	3	4	4	–	–	–	–

Craig D Mitchell and Darren J Steinberg were not members of any Board Committees during the year ended 30 June 2015.

Elizabeth A Alexander and Tonianne Dwyer were also Directors of DWPL and attended the Board meetings during the year ended 30 June 2015 (refer note 22).

The table below sets out the number of Board Committee meetings held during the year for the Committees in place between 1 July 2014 and 31 August 2014 and each Director’s attendance at those meetings.

					Board nomination,	Board nomination,
	Board Audit, Risk &		Board		Remuneration &		Board	Finance
	Sustainability	Committee	Compliance	Committee	Governance	Committee	Committee
	held	attended	held	attended	held	attended	held	attended
Christopher T Beare	1	1	–	–	1	1	1	1
Elizabeth A Alexander, AM	1	1	–	–	–	–	–	–
Penny Bingham-Hall	–	–	–	–	–	–	–	–
John C Conde, AO	–	–	–	–	1	1	–	–
Tonianne Dwyer	–	–	1	1	1	1	–	–
Craig D Mitchell	–	–	–	–	–	–	–	–
W Richard Sheppard	1	1	–	–	–	–	1	1
Darren J Steinberg	–	–	–	–	–	–	–	–
Peter B St George	–	–	–	–	–	–	1	1

3. REMUNERATiON REPORT

Overview

The Remuneration Report has been prepared in accordance with the Corporations Act 2001 and relevant accounting standards. Whilst the Group is not statutorily required to prepare such a report, the Board continues to believe that the disclosure of the Group’s remuneration practices is in the best interests of all security holders.

The Board believes that the Group’s remuneration framework encourages Executives to perform in the best interests of security holders. Short term financial and operational objectives are approved annually for each Executive, promoting alignment between investor returns and the rewards an Executive can receive under the STI plan. In addition, the Board has determined a set of financial performance hurdles within the LTI plan which provide the Executive with a performance and retention incentive which is strongly linked to security holder returns over the longer term.

Directors’ Report Continued

3. REMUNERATiON REPORT (CONTINUED)

Overview (continued)

The Board notes that the senior management team at DEXUS is small and focused. Consequently, an understanding of the individual roles and accountabilities is relevant in making remuneration judgements compared to other organisations in the sector. In some cases, revised job titles reflect the broader accountabilities.

Below are the principal Key Management Personnel (KMP) remuneration-related changes during the year ended 30 June 2015, which were approved by the Board and prospectively disclosed in the 2014 Remuneration Report:

§ Fixed remuneration for the Executive Director & Chief Executive Officer increased to $1,500,000 (+$100,000) effective 1 July 2014. This was the first fixed remuneration increase for Mr Steinberg since his commencement in March 2012 and was informed by market remuneration data and independent advice
§ Fixed remuneration for the Executive Director Finance & Chief Operating Officer increased to $900,000 (+$125,000) effective 1 July 2014. Mr Mitchell’s increase was based on peer comparison within the property industry and financial services industries, noting his increased responsibilities following a reduction in the size of the senior executive team
§ The Board Chair’s base fee increased to $375,000 (+$25,000) effective 1 July 2014, with Board Members’ base fees increasing to $160,000 (+$10,000). This was the first increase in Directors’ fees since 2010
§ Following security holder approval at the 2014 Annual General Meeting, the aggregate Directors’ fee pool was increased from $1,750,000 to $2,200,000. The fee pool had remained unchanged since the 2008 Annual General Meeting
§ The number of securities required to be held by each Director increased from 50,000 to 100,000 (this was adjusted to 16,500 post the security consolidation undertaken in October 2014). Securities are to be purchased on-market with personal funds and are to be acquired within three years of the 2014 Annual General Meeting. Newly appointed Directors need to acquire the relevant number of securities within three years of their appointment

Remuneration-related decisions effective 1 July 2015 approved by the Board are:

§ No fixed remuneration increase for the Executive Director & Chief Executive Officer
§ No fixed remuneration increase for the Executive Director Finance & Chief Operating Officer
§ Modest increases for other Executives, averaging just over 2%
§ Positively amending the Long Term Incentive (LTI) plan, with Adjusted Funds From Operations (AFFO) Growth replacing Funds From Operation (FFO) Growth as a performance measure to reflect management’s performance in managing maintenance capital expenditure, leasing incentives, derivative close-out costs and other one-off items
§ The intent to introduce a minimum security holding requirement for Executive KMP once an appropriate vested equity position has been achieved through the Deferred STI and LTI plans which were first introduced in 2012.

This Remuneration Report has been prepared in accordance with AASB 124 Related Party Disclosures and section 300A of the Corporations Act 2001. The information provided in this Report has been audited in accordance with the provisions of section 308 (3C) of the Corporations Act 2001.

Key Management Personnel

In this report, Key Management Personnel (KMP) are those individuals having the authority and responsibility for planning, directing and controlling the activities of the Group, either directly or indirectly. They comprise:

§ Non-Executive Directors
§ Executive Directors
§ Key Executives considered KMP under the Corporations Act 2001 (Executive KMP)

Below are the individuals determined to be KMP of the Group, classified between Non-Executive Directors, Executive Directors and Executive KMP:

Non-Executive Directors

		KMP	KMP
non-Executive Directors	Title	FY14	FY15
Christopher T Beare	Chair	✓	✓
Elizabeth A Alexander AM	Director	✓	✓
Penny Bingham-Hall	Director	Part-year	✓
John C Conde AO	Director	✓	✓
Tonianne Dwyer	Director	✓	✓
W Richard Sheppard	Director	✓	✓
Peter B St George	Director	✓	✓
Barry R Brownjohn	Director	Part-year	–
Stewart F Ewen OAM	Director	Part-year	–

2015 dexus annual rePOrT 21

Executive Directors

		KMP	KMP
Executive Directors	Position	FY14	FY15
Darren J Steinberg	Executive Director and Chief Executive Offcer	✓	✓
Craig D Mitchell	Executive Director Finance and Chief Operating Offcer	✓	✓
Executive KMP
		KMP	KMP
Executive KMP	Position	FY14	FY15
Kevin L George	Executive General Manager, Offce & Industrial	✓	✓
Ross G Du Vernet	Executive General Manager, Strategy, Transactions & Research	✓	✓

Board People & Remuneration Committee

The objective of the Committee is to assist the Board in fulfilling its responsibilities to oversee all aspects of Director and Executive remuneration and also oversee aspects of Human Resources management. The primary accountabilities of the Committee are to review and recommend to the Board:

§ CEO & Executive succession plans
§ Remuneration structures, including design and operation of employee incentive plans
§ CEO & Executive performance objectives, evaluation and remuneration outcomes
§ Non-Executive Directors’ base and committee fees
§ Talent management and learning & development strategies
§ Diversity principles and general people & culture practices

The Committee comprises three independent Non-Executive Directors. For the years ended 30 June 2014 and 2015 Committee members were:

non-Executive Director	Title	2014	2015
John C Conde AO	Committee Chair	✓	✓
Christopher T Beare	Committee Member	✓	✓
Penny Bingham-Hall	Committee Member	–	Part-year
Tonianne Dwyer	Committee Member	Part-year	Part-year
Stewart F Ewen OAM	Committee Member	Part-year	–

Mr Conde continued in his role as Committee Chair, drawing upon his extensive experience from a diverse range of appointments, including his role as President of the Commonwealth Remuneration Tribunal. The Committee’s capabilities are further enhanced through the membership of Mr Beare and Ms Bingham-Hall, each of whom has significant management experience in the property and financial services sectors.

Following Mr Ewen’s standing down from the Board in October 2013, Ms Dwyer joined the Committee for the remainder of FY14. She was subsequently replaced by Ms Bingham-Hall when the new Board Committee structure was implemented on 1 September 2014.

The Committee operates independently from management, and may at its discretion appoint external advisers or instruct management to compile information for its consideration. The CEO attends certain Committee meetings by invitation but is not present during discussions related to his own remuneration arrangements.

During the year, the Committee appointed Egan Associates to provide remuneration advisory services. Egan Associates was paid a total of $27,200 for general advisory services to the Committee. The Committee is satisfied the information and general advice received from Egan Associates is free from undue influence from the KMP to whom it relates.

The 2014 Remuneration Report received positive security holder support at the 2014 Annual General Meeting with a vote of 87.1% in favour.

Directors’ Report Continued

3. REMUNERATiON REPORT (CONTINUED)

Executive remuneration

Context

The Board believes that Executives should be rewarded at levels consistent with the complexity and risks involved in their positions. Incentive awards should be scaled according to the relative performance of the Group, as well as business unit performance and individual effectiveness.

The Group requires, and needs to retain, an Executive team with significant experience in:

At the Executive level, the Committee reviews feedback and information from remuneration advisers, proxy advisers and institutional investors, and considers stakeholder interests at each stage of the remuneration review process.

The Group’s remuneration principles and target remuneration structure are:

§ the office, industrial and retail property sectors
§ property management, including securing new tenancies under contemporary lease arrangements, asset valuation and related financial structuring and property development in its widest context
§ capital markets, funds management, fund raising, joint venture negotiations and the provision of advice and support to independent investment partners
§ treasury, tax and compliance

In this context, the Committee reviews trends in employee reward structures and strategies embraced across these sectors, including:

§ comparable international funds and asset managers which have an active presence in Australia
§ ASX listed entities

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Fixed
Remuneration
Variable ‘At-risk’
Remuneration
Fair and
competitive
Aligned
to investor
interests
Link Attract,
between motivate
performance and retain
and reward talent
+
----- End of picture text -----

§ salary benchmarking information from reputable industry sources such as Aon Hewitt and FIRG
§ boutique property asset managers and consultants
§ where relevant, information from private equity and hedge funds will be considered

Remuneration structure

Remuneration mix

The remuneration structure for Executive Directors and Executive KMP (collectively referred to as ‘Executives’ in this report) comprises fixed remuneration, a short term incentive and a long term incentive. The mix between these components varies according to the individual’s position and is determined based on the Group’s remuneration principles.

The chart below displays the remuneration structure for Executive KMPs expressed as a percentage of Fixed Remuneration at both target and outperformance (stretch) levels.

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----- Start of picture text -----

100%
75%
100% 50%
75%
50%
31% 31% 31%
25% 25% 25%
75% 94% 75% 94% 75% 94%
100% 100% 100% 100% 100% 100%
Target Outperformance Target Outperformance Target Outperformance
Mr Steinberg Mr Mitchell Mr George & Mr Du Vernet
Fixed STI Deferred STI LTI
At Risk
Fixed
----- End of picture text -----

2015 dexus annual rePOrT 23

STI plan
Purpose	The STI plan is designed to motivate and reward Executives for their annual contribution to the fnancial and
	non-fnancial performance of the Group.
Participation	At Target, each Executive can earn 100% of fxed remuneration under the STI plan and up to a maximum of 125%
	of fxed remuneration for Outperformance. 25% of the STI award is then deferred at further risk as Rights to DXS
	securities, subject to clawback and potential forfeiture.
Performance	The amount each Executive can earn is guided by how he/she performs against a personalised balanced scorecard of
	key performance indicators (KPIs) that are set at the beginning of each year. The balanced scorecard is arranged in
	categories and each category is weighted differently depending on the specifc accountabilities of each Executive. If an
	Executive does not meet Threshold performance in a category, the incentive beneft under that category will be zero.
	KPIs at the Target level are set with an element of stretch against Threshold performance, which ensures that it is
	diffcult for an Executive to achieve 100% in any category. Following the same theme, KPIs at the Outperformance
	level have a signifcant amount of stretch, and would require exceptional outcomes to be achieved. KPIs at both the
	Target and Outperformance levels incorporate year-on-year performance improvement.
	Aggregate performance below predetermined thresholds would result in no award being made under the STI plan.
Payment	STI payments are made in August, following the sign-off of statutory accounts and announcement of the Group’s
	annual results for the period to which the performance relates.
Deferral	25% of any award under the STI plan is deferred in the form of Rights to DXS securities.
	The Rights vest ordinarily in two equal tranches, 12 and 24 months after being awarded. However, they are subject
	to clawback and continued employment, and are based on a deferral period commencing 1 July after the relevant
	performance period.
	The number of Rights awarded is based on 25% of the STI value awarded to the Executive divided by the volume
	weighted average price (VWAP) of securities 10 trading days either side of the frst trading day of the new fnancial year.
Distributions	Executives will be entitled to the beneft of distributions paid on the underlying DXS securities prior to vesting,
	through the issue of additional Rights.
Forfeiture	Forfeiture will occur should the Executive’s employment terminate within six months of the grant date for any reason,
	or if the Executive voluntarily resigns or is terminated for cause prior to the vesting date.
	Notwithstanding the above, if an Executive’s employment is terminated for reasons such as retirement, redundancy,
	reorganisation, change in control or other unforeseen circumstances, the Board may decide that the Executive
	should remain in the plan as a ‘good leaver’.
Alignment	The STI plan is aligned to security holder interests in the following ways:
	§ as an immediate reward opportunity to attract, motivate and retain talented Executives who can infuence the
	future performance of the Group
	§ through a 25% mandatory STI deferral for Executives, allowing for future clawback of STI awards
Oversight	The CEO monitors and assesses performance of Executives as part of the Group’s annual performance management
	cycle. The CEO makes STI recommendations to the Board People and Remuneration Committee, who subsequently
	make recommendations to the Board for approval.
	The CEO’s own performance is assessed in a similar manner, with the Chair of the Board making recommendations
	to the Committee for the Board’s ultimate approval.
	The Board retains the right to amend, suspend or cancel the STI plan at any time.
LTI plan
Purpose	The LTI plan is designed to motivate and reward Executives for sustained earnings and security holder returns and is
	delivered in the form of Performance Rights to DXS securities.
Participation	The CEO receives an LTI grant equal to 100% of his fxed remuneration. The Executive Director Finance and
	Chief Operating Offcer receives an LTI grant equal to 75% of his fxed remuneration and other Executive KMP 50%.
Allocation	Executives receive a grant of Performance Rights to DXS securities which are at risk and subject to performance
	conditions set by the Board. The number of Performance Rights granted is based on the Executive’s grant value
	(% of fxed remuneration) divided by the volume weighted average price (VWAP) of securities 10 trading days either
	side of the frst trading day of the new fnancial year.
Tranches	Each grant is split into two equal tranches, with a vesting period of three and four years respectively after the grant date.

Directors’ Report Continued

3. REMUNERATiON REPORT (CONTINUED)

Remuneration structure (continued)

LTI plan (continued)

Performance conditions	The Board sets the performance conditions for the LTI plan on an annual basis. The four performance conditions for
	the 2015 LTI plan remain the same as last year but with a change to one of the internal performance conditions as
	explained below:
	External Performance Conditions (50%)
	§ 25% is based on the Group’s relative performance against a Total Shareholder Return (Relative TSR)
	performance hurdle measured against listed peers within the A-REIT sector
	TSR represents an investor’s return, calculated as the percentage difference between the initial amount invested
	and the fnal value of DXS securities at the end of the relevant period, assuming distributions were reinvested
	§ 25% is based on the Group’s relative performance against a Return On Equity (Relative ROE) performance
	hurdle measured against unlisted peers
	ROE represents the annualised composite rate of return to security holders, calculated as a percentage,
	comprising the change in net tangible asset value per security together with the distributions paid to security
	holders per security, divided by the net tangible asset value per security at the beginning of the period
	Internal Performance Conditions (50%)
	§ 25% is based on the Group’s performance against a predetermined Adjusted Funds From Operations (AFFO)
	per security growth hurdle
	Based on an internal review and cognisant of investor feedback, the Board has elected to make the change to
	AFFO from FFO (as used in previous year’s plans) in order to refect the impact of maintenance capex, leasing
	incentives, derivative close-out costs and other one-off items
	For the purposes of these performance hurdles, AFFO is defned as per the defnition adopted by the Property
	Council of Australia.
	§ 25% is based on the Group’s performance against a predetermined Return on Equity (ROE) performance hurdle
	ROE represents the annualised composite rate of return to security holders, calculated as a percentage,
	comprising the change in net tangible asset value per security together with the distributions paid to security
	holders per security, divided by the net tangible asset value per security at the beginning of the period
Vesting	Relative TSR and Relative ROE
	Vesting under both the Relative TSR and Relative ROE conditions will be on a sliding scale refecting relative
	performance against a comparator group of entities.
	§ Nil vesting for performance below the median of the comparator group
	§ 50% vesting for performance at the median of the comparator group
	§ Straight line vesting for performance between the 50th and 75th percentile
	§ 100% vesting for performance at or above the 75th percentile
	The listed and unlisted comparator groups remain unchanged ahead of the 2015 grant. Specifcally:
	§ Listed: all members of the S&P/ASX 200’s A-REIT Index
	§ Unlisted: all members of the Mercer IPD Core Wholesale Property Fund Index
	The Board reserves the right to review the comparator groups annually, with relative performance monitored by an
	independent external adviser at 30 June each year.
	AFFO Growth and ROE
	Vesting under both the AFFO Growth and ROE measures will be on a sliding scale refecting performance against
	predetermined performance conditions set by the Board.
	§ Nil vesting for below Target performance
	§ 50% vesting for Target performance
	§ Straight line vesting between Target and Outperformance
	§ 100% vesting for Outperformance
	AFFO Growth is the implied compound annual growth rate (CAGR) of the aggregate AFFO earnings per security
	in the three and four year vesting periods. ROE is measured as the per annum average at the conclusion of each
	vesting period.
	Following a review of the Group’s strategy and having complicated extensive internal forecasting, the Board has
	set the internal performance conditions for the 2015 LTI grant. Due to their commercially sensitive nature, LTI
	performance conditions will only be disclosed at the conclusion of the vesting period in line with the contemporary
	market practise.

2015 dexus annual rePOrT 25

Distributions	Executives are not entitled to distributions paid on underlying DXS securities prior to Performance Rights vesting.
Forfeiture	If the pre-determined performance conditions are not met then the Performance Rights relating to that tranche will
	be forfeited. There is no retesting of forfeited Rights.
	Additionally, forfeiture will occur should the Executive’s employment terminate within 12 months of the grant date for
	any reason, or if the Executive voluntarily resigns or is terminated for cause prior to the vesting date.
	Notwithstanding the above, if an Executive’s employment is terminated for reasons such as retirement, redundancy,
	reorganisation, change in control or other unforeseen circumstances, the Committee may recommend that the
	Executive should remain in the plan as a ‘good leaver’, for decision by the Board.
Alignment	The LTI plan is aligned to security holder interests in the following ways:
	§ As a reward to Executive’s when the Group’s overall performance exceeds specifc pre-determined earnings
	and security holder return benchmarks
	§ As a reward mechanism which encourages Executive retention and at the same time allows for future forfeiture
	of LTI grants for fnancial underperformance, deliberate misrepresentation or fraud
	§ By aligning the fnancial interests of Executives to security holders through exposure to DXS securities and
	Group performance
	§ By encouraging and incentivising Executives to make sustainable business decisions within the Board-
	approved strategy of the Group
Oversight	The administration of the LTI plan is supported by the LTI plan guidelines which provide Executives with the rules of
	the plan and guidance as to how it is to be administered.
	Executives are prevented from hedging their exposure to unvested DXS securities. Trading in DXS securities or
	related products is only permitted with the permission of the CEO.
	The Group also has Confict of Interest and Insider Trading policies in place to support the integrity of the LTI plan,
	which extends to family members and associates of the Executive.
	The Board has appointed Link Market Services as Trustee and Administrators of the DEXUS Performance Rights
	Plan Trust, which is the vehicle into which unvested units are purchased and held in trust for the Executive pending
	performance assessment.

The Board retains the right to amend, suspend or cancel the LTI plan at any time.

Service agreements

Executive service agreements detail the individual terms and conditions of employment applying to the CEO and Executives of the Group. The quantum and structure of remuneration arrangements are detailed elsewhere in this report, with the termination scenarios and other key employment terms detailed below:

CEO – Mr Steinberg

	Terms
Employment agreement	An ongoing Executive Service Agreement.
Termination by the CEO	Termination by Mr Steinberg requires a six month notice period. The Group may choose to place Mr Steinberg on
	‘leave’ or make a payment in lieu of notice at the Board’s discretion.
	All unvested STI and LTI awards are forfeited in this circumstance.
Termination by the Group	If the Group terminates Mr Steinberg without cause, Mr Steinberg is entitled to a payment of 12 months Fixed
without cause	Remuneration. The Board may (in its absolute discretion) also approve a pro-rata STI or LTI award based on
	part-year performance.
	Depending on the circumstances, the Board has the ability to treat Mr Steinberg as a ‘good leaver’, which may result
	in Mr Steinberg retaining some or all of his unvested STI and LTI.
Termination by the Group	No notice or severance is payable in this circumstance.
with cause
Other contractual	Mr Steinberg’s Executive Service Agreement includes standard clauses covering intellectual property, confdentiality,
provisions and restrictions	moral rights and disclosure obligations.

Directors’ Report Continued

3. REMUNERATiON REPORT (CONTINUED)

Service agreements (continued)

Executives – Messrs Mitchell, George and Du Vernet

	Terms
Employment agreement	An ongoing Executive Service Agreement.
Termination by	Termination by the Executive requires a three month notice period. The Group may choose to place the Executive on
the Executive	‘leave’ or make a payment in lieu of notice at the Board’s discretion.
	All unvested STI and LTI awards are forfeited in this circumstance.
Termination by the Group	If the Group terminates the Executive without cause, the Executive is entitled to a combined notice and severance
without cause	payment of 12 months Fixed Remuneration. The Board may (in its absolute discretion) also approve a pro-rata STI
	or LTI award based on part-year performance.
	Depending on the circumstances, the Board has the ability to treat the Executive as a ‘good leaver’, which may result
	in the Executive retaining some or all of his unvested STI and LTI.
Termination by the	No notice or severance is payable in this circumstance.
Group with cause
Other contractual	The Executive Service Agreement includes standard clauses covering intellectual property, confdentiality, moral
provisions and restrictions	rights and disclosure obligations.

Performance pay

Group performance

FY15 Highlights

		Third Party Funds
Group	Property Portfolio	Management	Trading	Capital Management
Delivered a 9.3% increase	Leased 394,133 square	Increased third party funds	Generated trading profts	Maintained a strong balance
in FFO and distribution per	metres of space across the	under management by 10%	of $42.6 million	sheet, with gearing of 28.5%,
security. Increased AFFO	total portfolio	to $9.6 billion		below the target range
by 19.0% to $369.8 million
Achieved a 15.8% one-year total security holder return and 11.5% return on equity	Maintained high occupancy 95.3% across the DEXUS offce portfolio	Involved in $863 million of transactions on behalf of third party clients	More than 60% of FY15 trading profts realised from the active repositioning of offce properties	Continued to diversify and increase duration of debt, securing $250 million of US Private Placement debt

Total Return of DXS Securities

The chart below illustrates DXS’s performance against the S&P/ASX200 Property Accumulation index since listing in 2004.

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DEXUS Property Group S&P/ASX200 Property Accumulation Index
Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-05 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15
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2015 dexus annual rePOrT 27

Total return analysis

The table below sets out DXS’s total security holder return over a one, three and five year time horizon, relative to the S&P/ASX200 Property Accumulation Index:

	1 Year	3 Years	5 years
Year Ended 30 June 2015	(% per annum)	(% per annum)	(% per annum)
DEXUS Property Group	15.8%	15.8%	16.2%
S&P/ASX200 Property Accumulation Index	20.3%	18.4%	14.3%
Median – Relative TSR Comparator Group	18.9%	21.0%	17.2%

DXS achieved a 15.8% per annum return over a rolling three year basis, underperforming the S&P/ASX200 Property Accumulation index by 2.6% and the median return of the benchmark peer group by 5.2%.

Individual performance assessment – Balanced Scorecards

Prior to the commencement of each financial year, the Board approves the Group’s strategic and operational objectives which are then translated into a series of weighted financial and non-financial Key Performance Indicators (KPIs) for management. Each Executive’s Balanced Scorecard is agreed based on these indicators.

The Scorecard is divided into five major components – ‘Group Financial Performance’, ‘Business & Portfolio Management’, ‘Funds Management & Transactions’, ‘Stakeholder Engagement’ and ‘People & Culture’. These components are differentially weighted to reflect the responsibilities of each Executive. For each of the components the Executive has objectives and specific initiatives set for that year. The Scorecards are agreed with the KMP Executive at the beginning of the year, reviewed at the half year and assessed for performance awards at the end of the year.

Below is a table which summarises the CEO’s Balanced Scorecard for the year ended 30 June 2015.

Category & Principal KPIs	Weighting	Result	Performance Detail
Group Financial Performance	30%	Above target	On balance, the Board has determined that Group Financial
Funds from operation (FFO), Return on equity (ROE), Development trading profts, like for like			Performance is above target, due to FFO, ROE, and trading profts exceeding targets, and market guidance, and property
property net operating income (NOI) growth			NOI growth in line with expectations.
Business & Portfolio Management	20%	At target	Consistently strong capital management and corporate
Rent at risk, deliver divisional business plans,			disciplines have underpinned sound performance across
debt duration, operating costs, development delivery, leasing transactions			property portfolios. Highlights include maintenance of strong credit ratings, debt WALE profle, solid occupancy rates and
			the delivery of business unit objectives around operational effciency and continuous improvement.
Funds Management & Transactions	30%	Above target	Unlisted funds growth through new and existing partners and
Funds investment performance, funds			fund investment performance exceeding expectations and
under management (FUM) growth, strategy			continuing to outperform benchmarks.
development, transactions effectiveness
Stakeholder Engagement	10%	Above target	Senior Executives increasing engagement with investors and
Investor engagement and feedback, media and community profle, sustainability, tenant			new capital partners, whilst developing existing relationships. Investors and the broader market gained an increased
relationships, internal and external service			understanding of key areas of the business through the
standards			inaugural Investor Day and the sustainability approach
			was enhanced. Continuing focus on improving customer relationships and community profle through innovation and
			service-based businesses.
People & Culture	10%	Above target	Increased focus on leadership, culture and diversity to sustain
Leadership effectiveness, employee engagement			a performance oriented culture was noted by the Board.
and culture, talent attraction and retention,			Improvements in recruitment and succession processes have
succession planning, employee development			enabled talent strategies to be deployed through moderate
			growth in employee population.

The scorecards for other Executive KMP are similar to that of the CEO, but with different weightings and with KPIs tailored to their individual roles.

Directors’ Report Continued

3. REMUNERATiON REPORT (CONTINUED)

Performance pay (continued)

STI awards

Application of the KPIs against the Balanced Scorecards resulted in no executive achieving their target STI or the maximum possible STI. The following table summarises the final awards made to each Executive KMP with respect to their performance during the year ended 30 June 2015.

		% of
		Maximum	% of
	STI Award	Possible STI	Maximum	% of STI to be
Executive	($)	Earned	STI Forfeited	Deferred
Darren J Steinberg	1,425,000	76%	24%	25%
Craig D Mitchell	810,000	72%	28%	25%
Kevin L George	575,000	72%	28%	25%
Ross G Du Vernet	500,000	73%	27%	25%

Deferred STI grants

25% of the value of the STI awarded to each Executive will be deferred as Rights to DXS securities, subject to service and clawback conditions, and vesting in two equal tranches after 12 and 24 months.

The table below shows the number of Rights to be granted to Executives under the 2015 Deferred STI plan (details of which are provided earlier in this report).

		1st	2nd
	number	Vesting Date	Vesting Date
Executive	of Rights	50%	50%
Darren J Steinberg	48,302	1 July 2016	1 July 2017
Craig D Mitchell	27,456	1 July 2016	1 July 2017
Kevin L George	19,490	1 July 2016	1 July 2017
Ross G Du Vernet	16,948	1 July 2016	1 July 2017

The number of Rights granted to each Executive is based on 25% of the dollar value of STI approved by the Board in its discretion and with reference to the remuneration framework, divided by the Volume Weighted Average Price (VWAP) of DXS securities 10 trading days either side of 1 July 2015, which was confirmed as $7.3754.

DXS securities relating to Deferred STI grants are purchased on-market in accordance with ASX Listing Rule 10.15B and are held by the DEXUS Performance Rights Plan Trust until the scheduled vesting date.

LTI grants

The table below shows the number of Performance Rights to be granted to Executives under the 2015 LTI plan (details of which are provided earlier in this report).

	number of	1st	2nd
	Performance	Vesting Date	Vesting Date
Executive	Rights	50%	50%
Darren J Steinberg	203,379	1 July 2018	1 July 2019
Craig D Mitchell	91,520	1 July 2018	1 July 2019
Kevin L George	43,387	1 July 2018	1 July 2019
Ross G Du Vernet	37,286	1 July 2018	1 July 2019

The number of Performance Rights granted to each Executive is based on the dollar value of LTI approved by the Board in its discretion and with reference to the remuneration framework, divided by the Volume Weighted Average Price (VWAP) of DXS securities 10 trading days either side of 1 July 2015, which was confirmed as $7.3754.

DXS securities relating to LTI grants are purchased on-market in accordance with ASX Listing Rule 10.15B and are held by the DEXUS Performance Rights Plan Trust until the scheduled vesting date.

2015 dexus annual rePOrT 29

Executive remuneration actual cash received

In line with best-practice recommendations, the amounts shown in the table below provide a summary of actual remuneration received during the year ended 30 June 2015. The STI and DDPP cash payments were received for performance in the 2014 and 2011 financial years respectively.

Executive Cash Salary ($) Pension & Super Benefts1 ($) Other Short Term Benefts ($)	Earned in Prior Financial Years Total ($) STI Cash Payment2 ($) DDPP Cash Payment3 ($)
Darren J Steinberg 1,481,217 18,783 –	1,312,500 – 2,812,500
Craig D Mitchell 866,997 33,003 –	727,500 625,005 2,252,505
Kevin L George 616,417 23,583 –	337,500 – 977,500
Ross G Du Vernet 531,217 18,783 –	562,500 – 1,112,500

1 Includes employer contributions to superannuation under the superannuation guarantee legislation and salary sacrifice amounts.

2 Cash payment made in August 2014 with respect to the 2014 STI Plan (i.e. annual performance payment for the prior financial year).

3 Cash payment made in August 2014 with respect to the 2011 DDPP award that vested on 1 July 2014 (i.e. realisation of three year deferred performance payment).

Executive remuneration statutory accounting method

The amounts shown in this table are prepared in accordance with AASB 124 Related Party Disclosures and do not represent actual cash payments received by Executives for the year ended 30 June 2015. Amounts shown under Share based and Long Term Benefits reflect the accounting expenses recorded during the year with respect to prior year deferred remuneration and awards that have or are yet to vest. For performance payments and awards made with respect to the year ended 30 June 2015, refer to the Performance Pay Outcomes section of this report.

Executive	Year	Short Term Benefts Post- Employ- ment Benefts Share Based & long Term Benefts Total ($) Cash Salary ($) STI Cash Award1 ($) Other Short Term Benefts ($) Pension & Super Benefts2 ($) Deferred STI Plan Accrual3 ($) DDPP Plan Accrual4 ($) Transition Plan Accrual5 ($) lTI Plan Accrual6 ($)
Darren J Steinberg	2015	1,481,217 1,068,750 – 18,783 430,168 – 104,853 748,595 3,852,366
	2014	1,382,225 1,312,500 – 17,775 360,799 – 105,000 434,572 3,612,871
Craig D Mitchell	2015	866,997 607,500 – 33,003 231,836 – 124,825 295,273 2,159,434
	2014	751,300 727,500 – 23,700 177,281 57,105 125,000 159,995 2,012,476
Kevin L George	2015	616,417 431,250 – 23,583 131,628 – – 180,568 1,383,446
	2014	602,425 337,500 – 22,575 271,020 – – 110,452 1,343,972
Ross G Du Vernet	2015	531,217 375,000 – 18,783 155,454 – 49,930 142,487 1,272,871
	2014	482,225 562,500 – 17,775 116,960 – 50,000 84,037 1,313,497
Total	2015	3,495,848 2,482,500 – 94,152 949,086 – 279,608 1,366,923 8,668,117
	2014	3,218,175 2,940,000 – 81,825 926,060 57,105 280,000 789,056 8,292,221

1 FY15 annual cash STI performance award, payable in August 2015.

2 Includes employer contributions to superannuation under the superannuation guarantee legislation and salary sacrifice amounts.

3 Reflects the accounting expense accrued during the financial year for Deferred STI awards made with respect to FY13, FY14 and FY15 performance. Refer to note 21 of the DXS Financial Statements. Mr George’s accrual for FY14 also included accounting for Performance Rights detailed in the 2014 Remuneration Report as Special Terms.

4 Reflects the accounting expense accrued during the financial year. The DDPP was closed to new members as of 1 July 2013 and Mr Mitchell is the only KMP beneficiary of this legacy plan. The amount presented includes a $9,405 adjustment to the 2014 disclosure which did not include June 2014 distributions as required by the plan. Mr Mitchell has no further residual entitlements under this plan.

5 FY12 Transitional plan applicable to all Executives, excluding Mr George. Reflects the accounting expense accrued during the financial year.

6 Reflects the accounting expense accrued during the financial year for LTI grants made with respect to FY13, FY14 and FY15 plans. Refer to note 21 of the DXS Financial Statements.

Directors’ Report Continued

3. REMUNERATiON REPORT (CONTINUED)

Deferred remuneration plans

Rights Plan – vesting deferred STI

The table below shows the number of rights that vested to executives under the Deferred STI during the year ended 30 June 2015.

				number of
			number	Additional	Vesting
Participant	Award Date	Tranche	of Rights1	Rights2	Date
Darren J Steinberg	1 July 2013	1	34,565	1,898	1 July 2014
Craig D Mitchell	1 July 2013	1	14,813	813	1 July 2014
Kevin L George	1 July 2013	1	6,518	358	1 July 2014
Ross G Du Vernet	1 July 2013	1	7,604	418	1 July 2014

1 Amounts have been restated to reflect the one-for-six security consolidation in October 2014.

2 Additional Rights are provided for under the terms of the STI Plan to reflect the distributions the participant would have received had they held the securities personally during the vesting period.

Rights Plan – unvested deferred STI

The table below shows the number of unvested rights held by Executives as at 30 June 2015 under the Deferred STI plan.

Participant	Award Date	Tranche number of Rights1 Fair Value ($) Vesting Date
Darren J Steinberg	1 July 2013	2 34,565 6.27 1 July 2015
	1 July 2014	1 32,179 6.72 1 July 2015
		2 32,179 6.72 1 July 2016
Craig D Mitchell	1 July 2013	2 14,813 6.27 1 July 2015
	1 July 2014	1 17,836 6.72 1 July 2015
		2 17,836 6.72 1 July 2016
Kevin L George	1 July 2013	2 6,518 6.27 1 July 2015
	1 July 2014	1 8,274 6.72 1 July 2015
		2 8,274 6.72 1 July 2016
Ross G Du Vernet	1 July 2013	2 7,604 6.27 1 July 2015
	1 July 2014	1 13,791 6.72 1 July 2015
		2 13,791 6.72 1 July 2016

1 Amounts have been restated to reflect the one-for-six security consolidation in October 2014.

2015 dexus annual rePOrT 31

Performance Rights plan – unvested LTI

The table below shows the number of unvested Performance Rights held by Executives as at 30 June 2015 under the LTI plan.

Participant	Award Date	Tranche number of Rights1 Fair Value ($) Vesting Date
Darren J Steinberg	1 July 2013	1 94,015 5.79 1 July 2016
		2 94,015 5.63 1 July 2017
	1 July 2014	1 102,971 5.66 1 July 2017
		2 102,971 5.43 1 July 2018
Craig D Mitchell	1 July 2013	1 29,626 5.79 1 July 2016
		2 29,626 5.63 1 July 2017
	1 July 2014	1 42,752 5.66 1 July 2017
		2 42,752 5.43 1 July 2018
Kevin L George	1 July 2013	1 27,177 5.79 1 July 2016
		2 27,177 5.63 1 July 2017
	1 July 2014	1 22,985 5.66 1 July 2017
		2 22,985 5.43 1 July 2018
Ross G Du Vernet	1 July 2013	1 19,751 5.79 1 July 2016
		2 19,751 5.63 1 July 2017
	1 July 2014	1 18,388 5.66 1 July 2017
		2 18,388 5.43 1 July 2018

1 Amounts have been restated to reflect the one-for-six security consolidation in October 2014.

Legacy Plan – unvested Transitional Rights

The table below shows the number of unvested Rights held by Executives under the Transitional Rights plan, which received security holder approval at the 2012 Annual General Meeting. The Board granted these once-off Rights to Executives, with respect to performance during the year ended 30 June 2012, as a transitional measure towards the adoption of the Group’s new remuneration framework which came into effect 1 July 2012.

		number
Participant	Award Date	of Rights1	Vesting Date
Darren J Steinberg	1 Jul 2012	75,570	1 Jul 2015
Craig D Mitchell	1 Jul 2012	89,964	1 Jul 2015
Ross G Du Vernet	1 Jul 2012	35,985	1 Jul 2015

1 Amounts have been restated to reflect the one-for-six security consolidation in October 2014.

At the Board’s instruction, Rights were purchased on-market and the plan is subject to both service and clawback conditions. For more information on the Transitional Performance Rights plan, refer to the 2012 Annual Report.

Directors’ Report Continued

3. REMUNERATiON REPORT (CONTINUED)

Non-Executive Directors

Board fee structure

Non-Executive Directors’ fees are reviewed annually by the Committee to ensure they reflect the responsibilities of directors and are market competitive. The Committee reviews information from a variety of sources to inform their recommendation regarding Non-Executive Directors’ fees to the Board. Information considered included:

§ Publicly available remuneration reports from ASX listed companies with similar market capitalisation and complexity
§ Publicly available remuneration reports from A-REIT competitors
§ Information supplied by external remuneration advisers, including Egan Associates

Other than the Chair who receives a single fee, Non-Executive Directors receive a base fee plus additional fees for membership of Board Committees. The table below outlines the Board fee structure (inclusive of statutory superannuation contributions) for the year ended 30 June 2015:

	Chair	Member
Committee	($)	($)
Director’s Base Fee (DXFM)	375,0001	160,000
Board Risk Committee	30,000	15,000
Board Audit Committee	30,000	15,500
Board Nomination Committee	15,000	7,500
Board People & Remuneration Committee	30,000	15,000
DWPL Board	45,000	22,500

1 The Chairman receives a single fee for his entire engagement, including service on Committees of the Board.

As mentioned in the overview section of this report, fees for Non-Executive Directors were increased effective 1 July 2014. The Board Chair’s base fee increased to $375,000 (+25,000), with Board Members’ base fees increasing to $160,000 (+$10,000). These were the first increase in Directors’ fees since 2010.

Total fees paid to Non-Executive Directors for the year remained within the aggregate fee pool of $2,200,000 per annum approved by security holders at the AGM in October 2014.

Minimum security holding

The minimum security holding requirement for Non-Executive Directors was increased to 100,000 (+50,000) DXS securities at the AGM in October 2014. This was then adjusted in October 2016 to 16,500 securities following the DXS security consolidation, with the requisite holding to be acquired by 29 October 2017. Newly appointed Directors are required to acquire the minimum security holding within three years of their appointment, noting that the minimum requirement is not dissimilar to one year’s base directors’ fees.

Securities held by Directors are subject to the Group’s existing trading and insider information policies. No additional remuneration is provided to Directors to purchase these securities. As at 30 June 2015, all Directors met this requirement, with the exception of Penny Bingham-Hall who was appointed to the Board on 10 June 2014. Details of Directors’ holdings are included in this Directors’ Report.

2015 dexus annual rePOrT 33

Non-Executive Directors’ Statutory Accounting Table

The amounts shown in this table are prepared in accordance with AASB 124 Related Party Disclosures . The table is a summary of the actual cash and benefits received by each Non-Executive Director for the year ended 30 June 2015.

non-Executive Director	Year Short Term Benefts ($) Post Employment Benefts ($) Other long Term Benefts ($) Total ($)
Christopher T Beare	2015 356,217 18,783 – 375,000
	2014 332,225 17,775 – 350,000
Elizabeth A Alexander AM	2015 201,683 18,317 – 220,000
	2014 178,490 16,510 – 195,000
Penny Bingham-Hall1	2015 168,950 18,147 – 187,097
	2014 7,921 733 – 8,654
Barry R Brownjohn2	2015 – – – –
	2014 54,920 5,080 – 60,000
John C Conde AO	2015 179,224 17,026 – 196,250
	2014 164,760 15,240 – 180,000
Tonianne Dwyer	2015 205,596 18,764 – 224,360
	2014 165,798 15,337 – 181,135
Stewart F Ewen OAM3	2015 – – – –
	2014 47,644 7,356 – 55,000
W Richard Sheppard	2015 191,781 18,219 – 210,000
	2014 167,206 15,467 – 182,673
Peter B St George	2015 171,233 16,267 – 187,500
	2014 151,030 13,970 – 165,000
Total	2015 1,474,684 125,523 – 1,600,207
	2014 1,269,994 107,468 – 1,377,462

1 Ms Bingham-Hall was appointed on 10 June 2014.

2 Mr Brownjohn stood down from the Board on 29 October 2013 and is included for comparative purposes only.

3 Mr Ewen stood down from the Board on 29 October 2013 and is included for comparative purposes only.

4. DiRECTORS’ RELEvANT iNTERESTS

The relevant interests of each Director in DXS stapled securities as at the date of this Directors’ Report are shown below:

Directors	no. of securities
Christopher T Beare	16,667
Elizabeth A Alexander, AM	16,667
Penny Bingham-Hall	8,334
John C Conde, AO	16,667
Tonianne Dwyer	16,667
Craig D Mitchell	300,8341
W Richard Sheppard	70,090
Darren J Steinberg	604,9281
Peter B St George	17,333

1 Includes interests held directly and through performance rights (refer note 21).

Directors’ Report Continued

5. REviEw OF RESULTS AND OPERATiONS

The Group’s financial performance for the year ended 30 June 2015 is summarised in the following section. In order to fully understand the results, the full Financial Statements included in this Financial Report should be referred to.

DEXUS OVERVIEW

DEXUS Property Group (DEXUS or the Group) is an Australian Real Estate Investment Trust (A-REIT) listed on the Australian Securities Exchange (ASX) that invests in, develops, manages and trades Australian office and industrial property. On behalf of third party clients which are mainly domestic and international pension funds, DEXUS also transacts, develops, and manages Australian office, industrial and retail property.

The owned portfolio consists primarily of high quality central business district (CBD) office properties, held long term and leased to derive stable and secure ongoing income streams. Developments, acquisitions and divestments are undertaken to enhance the quality and value of the portfolio.

DEXUS generates both rental income from its own properties and fees for leasing, property management and development on behalf of third party clients. In addition, DEXUS has a trading trust that enables the development and repositioning of properties to enhance value and sell for a profit.

The total property portfolio of $19.1 billion as at 30 June 2015 includes:

§ $9.5 billion of owned property, with an additional $1.2 billion development pipeline, and
§ $9.6 billion of property managed for third party clients, with an additional $2.3 billion development pipeline

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DEXUS PORTFOLIO THIRD PARTY FUNDS PORTFOLIO TOTAL GROUP PORTFOLIO
$9.5bn $9.6bn $19.1bn
DEXUS owned and managed portfolio of Management of a diverse portfolio of office,
Australian office and industrial properties industrial and retail properties on behalf of
third party partners and funds
Office: $7.8bn Office: $4.6bn Office: $12.4bn
Industrial: $1.7bn Industrial: $1.2bn Industrial: $2.9bn
Retail: $3.8bn Retail: $3.8bn
DEVELOPMENT PIPELINE DEVELOPMENT PIPELINE DEVELOPMENT PIPELINE
(future growth) (future growth) (future growth)
Development $1.2bn Development $2.3bn Development $3.5bn
----- End of picture text -----

DEXUS employs more than 350 property professionals with offices in Sydney, Melbourne, Brisbane and Perth. The team manages approximately 1.7 million square metres of office space, 2.2 million square metres of industrial space and 0.8 million square metres of retail space, making DEXUS the largest office manager and second largest industrial manager in Australia.

STRATEGY

DEXUS’s vision is to be globally recognised as Australia’s leading real estate company. This will be achieved by delivering superior risk adjusted returns from Australian real estate by investing primarily in CBD office properties. DEXUS sets measurable targets across its key stakeholder groups in line with its strategy and drives ethical and responsible performance in all areas of its operations.

Vision To be globally recognised as Australia’s leading real estate company

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----- Start of picture text -----

Strategy
To deliver superior
risk-adjusted returns for investors from high
quality Australian real estate primarily comprising CBD office buildings
Strategic LEADERSHIP IN CORE CAPABILITIES THIRD PARTY CAPITAL & RISK
Objectives OFFICE PARTNERSHIPS MANAGEMENT
DEXUS has objectives Being the leading Having the best people, Being the wholesale Actively managing
in support of its overall owner and manager strongest tenant partner of choice capital and risk in a
strategy of Australian office relationships and most in Australian office, prudent and disciplined
property efficient systems industrial and retail manner
property
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2015 dexus annual rePOrT 35

DEXUS’s strategy has several key elements:

1. Investing in and developing properties and spaces that DEXUS customers (tenants) want to occupy

2. Constantly improving the levels of service and amenity provided to customers

DEXUS utilises its core capabilities to continually improve the amenity of its real estate through property enhancements, and develops new products and services to enhance the customer experience. This focus increases the market appeal of DEXUS’s properties and assists in building meaningful relationships to attract and retain customers.

3. Partnering with third parties to grow in core markets and attract expertise

4. Maintaining a conservative approach to financial and operational risk

DEXUS has a strong ‘A-’ Standard & Poor’s credit rating and ‘A3’ investment grade rating from Moody’s. These ratings are the result of measuring, pricing and managing risk in a prudent manner. The success DEXUS has had in attracting significant amounts of capital from third parties is an endorsement of its approach to investing and managing risk. Since 2012, DEXUS has raised more than $4 billion from some of the world’s largest and most sophisticated investors in unlisted property.

Reflecting DEXUS’s strategy of delivering superior risk adjusted returns for investors, DEXUS has identified three long term measures for success:

§ FFO growth of 3-5% through the cycle
§ Return on Equity of 9-10% through the cycle
§ Top quartile total security holder return

DEXUS draws on the core capabilities of its people to achieve its long term and short term targets.

Key earnings drivers – FY15 result

DEXUS sets short term targets against its earnings drivers across three areas of its business: the property portfolio, funds management and property services, and trading. The following chart summarises the FY15 result against the targets set for each of the earnings drivers.

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----- Start of picture text -----

PROPERTY FUNDS MANAGEMENT TRADING
PORTFOLIO & PROPERTY SERVICES
FY15 Target
Positive like-for-like income growth $35-40 million Approximately $40 million
FY15 Result $645.6 million $37.9 million
95.3% office portfolio occupancy DEXUS Office Partnership delivered
$42.6 million [2]
Total portfolio +0.3% a levered one-year total return
L-F-L income growth [3] to DEXUS of 20.4%
89% FFO [1] 5% FFO [1] 6% FFO [1]
Underlying business Trading
----- End of picture text -----

1 FFO contribution is calculated before Finance costs and Group corporate costs.
2 Trading profits generated less FFO tax expense that is being recognised for Rosebery in the year.
3 Like-for-like income growth is calculated on an effective basis.

DEXUS achieved its FY15 targets against each of its earnings drivers. Funds from Operations[1] (FFO) from the owned property portfolio delivered $645.6 million, within the 80-90% target range. Funds management and property services delivered $37.9 million and the trading business achieved $42.6 million in profits (post tax).

1 FFO is in line with the Property Council of Australia definition and comprises net profit/loss after tax attributable to stapled security holders calculated in accordance with Australian Accounting Standards and adjusted for: property revaluations, impairments, derivative and FX mark to market impacts, fair value movements of interest bearing liabilities, amortisation of tenant incentives, gain/loss on sale of certain assets, straight line rent adjustments, deferred tax expense/benefit, rental guarantees, coupon income and distribution income net of funding costs.

Directors’ Report Continued

5. REviEw OF RESULTS AND OPERATiONS (CONTINUED)

STRATEGY (continued)

FY15 Achievements

The successful achievement of the FY15 targets against the key earnings drivers is underpinned by activities relating to DEXUS’s four strategic objectives. The table below details achievements for FY15 for each of the strategic objectives.

Strategic Objective	FY15 Achievements
Leadership In Offce	Leveraged property expertise to improve the DEXUS offce portfolio occupancy rate to 95.3%.
	Developed and implemented a ‘ftted suites’ offering of customised offce space for customers with needs of less than a whole foor, enabling DEXUS to attract and retain more tenants.
	Developed and introduced ‘DEXUS Place’ in Sydney, providing state of the art meeting room and conference facilities for DEXUS customers, enabling DEXUS to attract and retain more customers through enhanced customer offering.
	Launched multiple new services for DEXUS customers including on-site secure Australian Post parcel locker facilities, DEXUS Diners Club charge card for payment of rent and accruing reward points, and insurance based ‘security bond’ facilities. These services assist in increasing customer satisfaction and improve the willingness to enter or renew leases.
Core Capabilities	Leveraged the capabilities of the business to deliver trading profts of $42.6 million (after tax).
	Continued to attract and retain the best people in key positions to enhance expertise and leadership across the Group including a new leadership role of Deputy Chief Financial Offcer.
	Through ongoing investment in people and processes, continued to develop a culture of effciency and continuous improvement to achieve high performance.
	Leveraged industrial expertise to acquire and develop new industrial product.
	Leveraged retail expertise to reposition the quality and income earning capacity of city retail spaces in the offce portfolio and the shopping centres managed on behalf of third party partners.
Third Party Partnerships	Delivered a 12.7% unlevered total return for the DEXUS Offce Partnership portfolio in the 12 months to 30 June 2015, exceeding original performance assumptions.
	Involved in $863 million of transactions on behalf of third party clients across the offce, industrial and retail markets.
	Grew the third party development pipeline from $2.0 billion to $2.3 billion.
	Achieved continued outperformance to benchmark for DEXUS Wholesale Property Fund (DWPF) over three and fve year periods.
Capital and Risk Management	Maintained a prudent balance sheet, with gearing of 28.5% (debt as a percent of total assets) below DEXUS’s 30-40% target range.
	Maintained a competitive cost of capital with a debt cost of 5.2% and maintained hedging of greater than 65% of total debt.
	Improved access and diversity of funding sources, including acquiring properties in joint partnership with existing partners (DEXUS Industrial Partnership and DWPF).
	Recycled properties through divestment and acquisition consistent with the return on investment objectives of creating security holder value over individual property life cycles.

2015 dexus annual rePOrT 37

REVIEW OF OPERATIONS

DEXUS has adopted FFO as its underlying earnings measure which has been defined in accordance with the guidelines established by the Property Council of Australia for its reporting with effect from 1 July 2014.

In accordance with Australian Accounting Standards, net profit includes a number of non-cash adjustments including fair value movements in asset and liability values. FFO is a global financial measure of real estate operating performance and is determined by adjusting net profit after finance costs and taxes, and is adjusted for certain items which are non-cash, unrealised or capital in nature.

The Directors consider FFO to be a measure that reflects the underlying performance of the Group.

The following table reconciles between profit attributable to stapled security holders, FFO and distributions paid to stapled security holders.

	30 June 2015	30 June 2014
	($m)	($m)
Net proft for the year attributable to stapled security holders	618.7	406.6
Net fair value gain of investment properties1	(241.0)	(165.5)
Net fair value loss of derivatives and interest bearing liabilities	47.0	40.6
Net loss on sale of investment properties	3.1	8.3
CPA transaction costs	–	76.7
Finance break costs attributable to sales transactions	–	4.5
Foreign currency translation reserve transfer on disposal of foreign operations	2.1	(0.8)
Incentive amortisation and rent straight-line1,2	79.9	58.4
Reversal of impairment of management rights	–	(7.3)
Coupon income	15.5	13.1
Deferred tax	19.2	12.0
Funds from Operations (FFO)	544.5	446.6
Retained earnings3	158.9	131.2
Distributions	385.6	315.4
FFO per security4(cents)	59.5	54.4
Distribution per security4(cents)	41.04	37.56
Net tangible asset backing per security4($)	6.68	6.36

1 Including DEXUS’s share of equity accounted investments.

2 Including cash, rent free and fit out incentives amortisation.

3 Based on DEXUS’s distribution policy to payout in line with free cash flow. The payout ratio equated to 69% of FFO in both FY15 and FY14.

4 All FY14 per security figures in this report are restated to reflect the one-for-six security consolidation completed on 14 November 2014.

Directors’ Report Continued

5. REviEw OF RESULTS AND OPERATiONS (CONTINUED)

REVIEW OF OPERATIONS (continued)

Operating result

GROUP

DEXUS’s net profit after tax was $618.7 million or 67.6 cents per security, an increase of $212.1 million from the prior year (FY14: $406.6 million). The key drivers of this movement included:

§ Funds from Operations, or FFO, increased by $97.9 million resulting in FFO per security of 59.5 cents, an increase of 9.3%
§ Net revaluation gains of investment properties of $241.0 million, representing a 2.6% uplift across the portfolio, were $75.5 million higher than the FY14 gains. This was driven primarily by value uplifts across the office portfolio
§ The FY14 statutory net profit was reduced by costs of $76.7 million relating to the CPA transaction which completed in April 2014

Revaluation gains achieved across DEXUS’s office portfolio primarily drove the 32 cent increase in NTA per security to $6.68, reflecting the contribution of leasing success on capital values and capitalisation rate compression at properties with strong tenant covenants.

The following table provides a summary of the key components of FFO and AFFO based on the information provided in the Group Performance and Property Portfolio assets sections included in this Financial Report.

	30 June 2015	30 June 2014
	$m	$m
Offce Property FFO	533.3	455.4
Industrial Property FFO	112.3	122.8
Total Property FFO	645.6	578.2
Management operations	37.9	27.9
Group corporate	(30.4)	(27.5)
Net fnance costs	(150.8)	(139.4)
Other1	(0.4)	3.1
Underlying FFO	501.9	442.3
Trading profts (net of tax)	42.6	4.3
FFO	544.5	446.6
Maintenance capex, lease incentives and leasing costs paid	(174.7)	(135.9)
AFFO2	369.8	310.7

1 ‘Other’ income includes development management fees.

2 AFFO is calculated in line with the Property Council of Australia definition and comprises PCA FFO and adjusted for: maintenance capex,incentives (including rent free incentives) given to tenants during the period and other items which have not been adjusted in determining FFO.

Operationally, FFO increased 21.9% to $544.5 million (FY14: $446.6 million).

The key drivers of the $97.9 million increase included:

§ Office Property FFO increased by $77.9 million to $533.3 million, driven by additional income from the DEXUS Office Partnership properties. This was partially offset by a $10.5 million reduction in Industrial Property FFO to $112.3 million as a result of divestments and lower occupancy at Auburn, Gladesville and Rosebery
§ Management operations income increased by $10.0 million to $37.9 million, driven by the DEXUS Office Partnership and growth in other third party Funds Under Management (FUM)
§ Group corporate costs increased by $2.9 million (up 10.5% compared to FY14) despite the significant increase in revenues and FUM, demonstrating the scalability of DEXUS’s business
§ Finance costs net of interest revenue increased by $11.4 million to $150.8 million, due to an increase in debt to fund the CPA transaction, partially offset by lower interest costs
§ Trading profits (net of tax) increased by $38.3 million to $42.6 million after tax

On a per security basis, FFO increased 9.3% to 59.5 cents. The per security result takes into account the scrip issued in April 2014 as part of the CPA transaction, explaining the difference in growth rates between the aggregate total dollar value of FFO and FFO per security. The underlying business excluding trading profits delivered FFO per security of 54.8 cents, and grew by 1.7% on the previous year.

Distributions

Distributions per security for the year ended 30 June 2015 were 41.04 cents per security, up 9.3% on the previous year (FY14: 37.56 cents). The distribution payout for the year was in line with free cash flow, in accordance with DEXUS’s distribution policy.

2015 dexus annual rePOrT 39

Return on equity

DEXUS delivered Return on Equity of 11.5%[1] in FY15, above the 9–10% per annum target through the cycle and above the 6.7% delivered in the prior year which was impacted by the CPA transaction.

Management expense ratio

	30 June 2015	30 June 2014
	$m	$m
Group corporate costs	30.4	27.5
Asset management costs	9.1	10.8
Total corporate and asset management costs	39.5	38.3
Closing funds under management (balance sheet only)	9,533	7,8202
Group management expense ratio (MER)	41bps	49bps

While Group corporate costs increased to $30.4 million as a result of business growth, DEXUS has been able to maintain these corporate costs enough to reduce the overall Management expense ratio[3] (MER) from 49 basis points in FY14 to 41 basis points.

The following sections review the FY15 performance of the Group’s key financial drivers: Property Portfolio, Funds Management & Property Services, and Trading.

PROPERTY PORTFOLIO

DEXUS remains focused on maximising the performance of its property portfolio through leasing and asset management activities, with the property portfolio contributing to 89% of FFO in FY15.

DEXUS increased the size of its direct portfolio to $9.5 billion at 30 June 2015 from $9.1 billion at FY14. This movement was driven by the acquisition of Lakes Business Park, Botany for $153.5 million and three industrial properties through the DEXUS Industrial Partnership for $55.1 million in aggregate, the positive contribution of developments and investment property revaluations, which were partially offset by $433 million of divestments including DEXUS’s remaining offshore property in New Zealand as well as three trading properties.

Office portfolio

Portfolio value: $7.8 billion Total area: 1,403,255 square metres Area leased during the year: 211,071 square metres[4]

Key metrics	30 June 2015	30 June 2014
Occupancy by income	95.3%	94.6%
Occupancy by area	95.5%	94.3%
WALE by income	4.3 years	4.7 years
Average incentive	15.0%	18.6%5
Average rental increase/(decrease)6	0.1%	3.1%5
Retention rate	61%	61%5
Total return – 1 year	9.6%	9.2%5

DEXUS improved occupancy and maximised cash flows across its office portfolio by capturing demand from diverse tenant groups and increasing the number of effective leasing deals (with no incentives). Continued positive momentum for space in core A-grade properties in Sydney and Melbourne has driven leasing volumes across the office portfolio, resulting in occupancy increasing to 95.3% and delivering on the ‘above 95%’ target set at the start of the year.

DEXUS signed 275 leases across 98,340 square metres for spaces less than 1,500 square metres, representing 47% of all leasing undertaken by area.

The combination of improved tenant demand and increased acceptance of effective deal structures allowed DEXUS to maintain a focus on reducing incentives, resulting in average incentives of 15.0% across all office leasing, an improvement from 18.6% at 30 June 2014.

During the year, DEXUS leased 211,071 square metres[4] of office space across 303 transactions on average lease terms of 5.5 years. Office portfolio occupancy by income improved from 94.6% at 30 June 2014 to 95.3% and portfolio WALE reduced to 4.3 years. Despite tenant retention of 61%, DEXUS successfully leased 51% of the vacated area during the year, with average downtime of only four months.

1 Return on Equity is calculated as the growth of NTA per security plus the distribution paid/payable per security divided by the opening NTA per security.

2 FY14 listed FUM uses an average rather than closing to account for the purchase of the CPA portfolio in April 2014.

3 DEXUS’s MER is calculated as unallocated Group corporate and asset management expenses divided by on-balance sheet FUM. 4 Including Heads of Agreement.

5 Excluding the DEXUS Office Partnership properties.

6 Average change in face rents for leasing undertaken during the year.

Directors’ Report Continued

5. REviEw OF RESULTS AND OPERATiONS (CONTINUED)

REVIEW OF OPERATIONS (continued)

Operating result (continued)

PROPERTY PORTFOLIO (continued)

The DEXUS office portfolio delivered a one-year total return of 9.6% (FY14: 9.2%) driven by a strong revaluation uplift across the DEXUS Office Partnership properties, partially offset by a reduction in the valuation of 240 St Georges Terrace in Perth. Office property FFO increased by $77.9 million to $533.3 million underpinned by the additional income from the DEXUS Office Partnership properties, with office like-for-like income growth of 0.2%.

In June 2015, DEXUS and DWPF announced that they had reached a conditional agreement to jointly (50/50) acquire Waterfront Place and Eagle Street Pier located within the prime commercial precinct of the Brisbane CBD known as the ‘Golden Triangle’ for $635 million[1] , reflecting a capitalisation rate of 6.9%. The property is an excellent long term core investment, and Eagle Street Pier offers one of the best future development sites in the Brisbane CBD. The acquisition is expected to settle on or around 1 October 2015 and increases DEXUS’s weighting to the Brisbane CBD office market from 12.2% to 15.6%.

In FY16, DEXUS will continue to proactively manage and drive the performance of the office portfolio while enhancing the value of newly acquired properties. DEXUS will focus on maintaining occupancy of >95%; reducing FY17 office lease expiries to 10%; and continuing to reduce incentives and undertaking effective leasing deals. DEXUS expects flat like-for-like income growth across the DEXUS combined portfolio.

Industrial portfolio
Portfolio value:	$1.7 billion
Total area:	1,294,735 square metres
Area leased during the year:	183,062 square metres2
Key metrics		30 June 2015	30 June 2014
Occupancy by income		92.4%	93.0%
Occupancy by area		91.7%	93.1%
WALE by income		4.0 years	4.0 years
Average incentive		10.8%	11.0%
Average rental increase/(decrease)3		(4.6)%	(8.6)%
Retention rate		53%	41%
Total return – 1 year		11.3%	9.0%

Low interest rates are boosting business supported by housing construction and infrastructure projects which is translating into demand for industrial facilities aligned to key transport corridors. With the increasing conversion of South Sydney and Inner West industrial sites into residential and mixed uses, the central and outer western Sydney markets are benefiting from increased demand from a wide user category seeking to be centrally located and in proximity to major arterial roads.

During the year, DEXUS leased 183,062 square metres[2] of industrial space across 75 transactions including 44 leases with new tenants. Tenant retention improved to 53% from 41% during FY14. DEXUS’s industrial portfolio occupancy by income reduced from 93.0% at 30 June 2014 to 92.4%, driven by an increase in vacancy at large scale facilities including Matraville, Flemington and Dandenong. DEXUS expects industrial occupancy to improve over the next six months driven by further leasing at properties such as Dandenong which secured a new 10,612 square metre tenant in FY15 and now has 10,920 square metres remaining to lease.

Industrial Portfolio WALE remained steady at 4.0 years. New rents reduced 4.6% on average compared with prior rents, driven by reversions on renewals and new leases, as the industrial portfolio remains 6.9% over-rented. Average incentives decreased slightly to 10.8% (FY14: 11.0%).

DEXUS’s industrial portfolio delivered a one-year total return of 11.3% (FY14: 9.0%) driven by improved property values. Industrial property FFO of $112.3 million was down 8.6% on FY14, primarily as a result of divestments and lower occupancy at properties such as Rosebery. Like-for-like income growth was 0.7%, driven by fixed increases across the portfolio, leasing at 15-23 Whicker Road, Gillman and 30 Bellrick St, Acacia Ridge, offset by vacancy at Pound Road West, Dandenong.

DEXUS acquired Lakes Business Park, Botany, NSW for $153.5 million[1] in January 2015, investing in one of DEXUS’s core industrial markets. The property has the potential for superior rental growth in the medium term due to the lack of greenfield land options, combined with strong momentum with competing land use opportunities in the area.

In FY16, DEXUS will focus on active asset management of the industrial portfolio to deliver attractive income returns; pursuing non-core divestments and/or change of use repositioning opportunities within the existing portfolio; developing core new industrial product and pursuing core plus acquisition opportunities for DEXUS and its third party partners.

1 Excluding acquisition costs.

2 Including Heads of Agreement.

3 Average change in face rents for leasing undertaken during the year.

2015 dexus annual rePOrT 41

Development

DEXUS continued to enhance future investor returns through progressing its $1.2 billion development pipeline, with key office projects nearing completion.

DEXUS utilises its development expertise and leverages its portfolio scale to deliver best-in-class office buildings and prime industrial facilities improving portfolio quality and enhancing investor returns. Development provides DEXUS with access to stock and leads to improved portfolio quality and diversification, attracts revenues through development management fees and delivers on capital partner strategies.

DEXUS allocates up to 15% of Funds Under Management (FUM) across its direct portfolio to development and trading/value-add activities. Currently representing 6.5% of FUM, these activities are focused on providing earnings accretion and enhancing total return.

The first stage of the 5 Martin Place, Sydney development reached practical completion on 30 June 2015, with Ashurst moving into levels 5 to 11 across 12,644 square metres in July 2015. The entire project is due for completion in September 2015. The office space is currently 82% committed from 42% at acquisition and the retail space is 73% committed.

Two of the three towers at Kings Square, Perth were completed, with Shell to fully occupy one of the towers as its new corporate headquarters. The remaining tower is expected to be completed in August 2015. A rental guarantee secured at time of acquisition ensures full income on the properties for a further five years from practical completion with the office space currently 55% committed.

The Premium grade 480 Queen Street, Brisbane development topped out on 16 July 2015 with the office space 81% committed prior to the development’s scheduled completion in early 2016.

The three year program for the Quarrywest at Greystanes development is underway, with a pre-commitment secured for a warehouse facility.

Over the year, the Group development pipeline grew to $3.5 billion, (DEXUS portfolio of $1.2 billion; Third Party Funds portfolio of $2.3 billion).

In FY16 DEXUS will deliver key office developments in Sydney, Perth and Brisbane; progress the DEXUS Industrial Partnership developments at Quarrywest, Hemmant and Larapinta; and progress the Australian Industrial Partnership development at Laverton North.

FUNDS MANAGEMENT AND PROPERTY SERVICES

DEXUS’s Third Party Funds Management business represents over half of the Group’s $19.1 billion funds under management and its $2.3 billion development pipeline will drive organic growth across the platform. Third party funds under management increased to $9.6 billion, up 10% from 30 June 2014, achieved through acquisitions, developments and revaluations.

The activities undertaken by the Third Party Funds Management business include managing office, industrial and retail investments on behalf of third party partners and funds. These activities result in DEXUS earning fees for its funds management, property management, leasing and development management services.

Over the past three years, DEXUS has established partnerships with three major investors and the DEXUS Wholesale Property Fund has raised approximately $1.5 billion of capital. These results reflect third party partner recognition of DEXUS’s transactional capabilities, strategic asset and development management expertise, as well as its best-practice corporate governance principles.

In FY16 DEXUS will continue to drive performance in the third party portfolios through active leasing; successfully deliver third party office, industrial and retail developments; and deliver on third party clients’ transactional requirements.

TRADING

Trading is a capability that involves the identification of opportunities, repositioning or developing to enhance value with the intention to sell.

Trading properties are either acquired with the direct purpose of repositioning or development, or they are identified in DEXUS’s existing portfolio as having value-add potential and acquired by DXO to be repositioned or developed, then sold.

Since 2010, DEXUS has been undertaking trading activities and recognising trading profits in its FFO. Over the past three years, DEXUS has established a robust trading portfolio that DEXUS believes will drive consistent delivery of profits from this area of the business.

Trading profits of $42.6 million[1] were realised in FY15, with more than 60% of trading profits realised from the active repositioning of office properties at 50 Carrington Street, Sydney, and 40 Market Street, Melbourne.

The initial payment for Rosebery, net of tax, contributed to FY15 trading profits and the remaining proceeds will be realised in FY16.

In July 2015, DEXUS settled on the sale of 5-13 Rothschild Avenue and 22-55 Rosebery Avenue, Rosebery and 154 O’Riordan Street, Mascot. These properties will deliver FY16 trading profits of approximately $60 million (post tax).

DEXUS continued to grow its trading pipeline, identifying a number of properties as potential opportunities for repositioning or development and trading in future years including 32 Flinders Street, Melbourne and the southern site of Lakes Business Park, Botany. In FY16, DEXUS will continue to progress these opportunities along with others in the trading pipeline.

1 Trading profits generated less FFO tax expense recognised for Rosebery in the year.

Directors’ Report Continued

5. REviEw OF RESULTS AND OPERATiONS (CONTINUED)

REVIEW OF OPERATIONS (continued)

Financial position (look-through)

	30 June 2015	30 June 2014
	$m	$m
Offce properties1	7,822	7,659
Industrial properties1	1,711	1,470
Other assets2	838	933
Total assets	10,371	10,062
Borrowings3	2,957	3,117
Other liabilities	637	892
Net assets	6,777	6,053
Less: intangibles	(292)	(292)
Net tangible assets	6,485	5,761
Total securities on issue	970,806,349	905,531,797
NTA per security ($)	6.68	6.36

Total look-through assets increased by $309 million primarily due to $181.1 million of acquisitions, development capital expenditures and $241.0 million of property valuation increases, partially offset by $405.9 million of divestments.

Total look-through borrowings reduced by $160 million as debt was paid down with proceeds from the equity raising (including Security Purchase Plan) and property divestments mentioned above, partially offset by funding required for the acquisitions and development capital expenditures mentioned above.

Capital management

§	Cost of debt	5.2%
§	Duration of debt	5.7 years
§	Gearing (look through)4	28.5%
§	S&P/Moody’s credit rating:	A-/A3

DEXUS maintained the strength of its balance sheet with gearing[4] at 28.5%, securing new debt at competitive margins and extending the duration of its debt to 5.7 years. DEXUS has minimal short term refinancing requirements and will continue to take advantage of its improved credit ratings to secure new debt funding.

DEXUS remains within all of its debt covenant limits and target ranges.

Equity raising

DEXUS completed an equity raising comprising a $400 million Institutional Placement in April 2015 followed by a $77.8 million Security Purchase Plan (SPP) which completed in June 2015. The equity raising was undertaken to enable DEXUS to pursue compelling acquisition opportunities, including the acquisition of Waterfront Place which was announced on 22 June 2015, while ensuring DEXUS remained lowly geared.

Security consolidation

DEXUS implemented a one-for-six security consolidation in November 2014 which reduced the total number of securities on issue.

On market securities buy-back

On 14 October 2014, DEXUS announced a new on-market securities buy-back of up to 5% of DEXUS securities on issue. The buy-back provided DEXUS with the flexibility to acquire securities on market should conditions permit, with a focus on enhancing returns for investors. The buy-back is yet to be utilised and was suspended on 21 April 2015 as a consequence of the announcement of an equity raising.

1 Includes DEXUS’s share of investment properties in equity accounted investments.

2 Including intangibles.

3 Includes DEXUS’s share of borrowings in equity accounted investments.

4 Adjusted for cash and for debt in equity accounted investments. Pro-forma gearing is 29.3% post the receipt of proceeds from the divestment of the Rosebery and Mascot trading properties and the acquisition of the Waterfront Place Complex which is expected to settle in October 2015.

2015 dexus annual rePOrT 43

OUTLOOK

Group

The majority (80-90%) of DEXUS’s FFO is derived from rental income from its direct property portfolio, with the remainder derived from the funds management & property services and trading businesses. Key lead indicators and factors affecting the outlook of each of these areas of the business are outlined below.

Property portfolio

Office: The performance of office markets is influenced by the strength of the broader economy and business confidence, the supply and demand characteristics of particular CBD markets and the leasing characteristics of individual properties.

Lead indicators such as ANZ job advertisements continue to suggest an improvement in hiring intentions which would have a flow on effect to white collar employment growth and low interest rates are having a positive impact on business growth. With continued improvement in enquiry levels in Sydney and Melbourne, the steady economic recovery is expected to translate into increased demand for space in these markets with rental growth remaining subdued as supply comes online in the short to medium term. Brisbane and in particular Perth are expected to lag the other CBD markets in the short term.

DEXUS is in a strong position to benefit from an improvement in office markets with its high quality office portfolio 86% weighted to Prime grade properties, 61% located in Sydney and 14% located in Melbourne. DEXUS’s key office developments completed at 5 Martin Place in Sydney and Kings Square in Perth are 82% and 55% committed respectively, with 480 Queen Street in Brisbane 81% leased. DEXUS has a five year and two year rental guarantee in place at Kings Square, Perth and 480 Queen Street, Brisbane respectively.

Industrial: Industrial markets are expected to benefit from low interest rates, which are boosting small to medium business activity in particular. The lower Australian dollar is expected to continue to drive Sydney port volumes and translate to demand from general merchandise retail for industrial space.

With the increasing conversion of South Sydney and Inner West industrial sites into residential and mixed uses, central and outer western Sydney markets will benefit from increased enquiry levels. The Melbourne industrial markets will continue to suffer from supply coming online and elevated incentives.

DEXUS’s industrial portfolio in Sydney will benefit from tenant demand as a result of the stimulatory economic environment and stock withdrawals, and will remain challenged in Melbourne in the short term. DEXUS will undertake industrial developments on both a pre-commitment and speculative basis utilising its development capabilities to produce new product to attract quality tenants in Sydney, Melbourne and Brisbane.

Funds management & property services

DEXUS’s third party funds management platform is currently 47% weighted to office, 13% to industrial and 40% to retail properties. Its office and industrial property performance will be impacted by the key lead indicators discussed above. For retail properties, sales growth is expected to improve further in FY16 in response to low interest rates, lower petrol prices, strengthening employment and the depreciation of the Australian dollar which is expected to boost domestic tourism and constrain online spending.

The weight of capital searching for Australian real estate is expected to remain strong in FY16, supported by low interest rates globally and the high yields offered by Australian property relative to global peers.

DEXUS will continue to satisfy the investment objectives of its third party clients and funds through growing existing funds via acquisitions and progressing the $2.3 billion third party development pipeline. DEXUS will maximise the performance of properties managed on their behalf to continue its recognition as a wholesale partner of choice.

Trading

The trading business is an ongoing revenue stream, with the recognition of trading profits included in FFO. DEXUS will continue to identify potential trading opportunities within its existing portfolio and seek new trading opportunities in core markets in order to replenish the future trading pipeline. DEXUS has already exchanged on the properties that comprise FY16 trading profit guidance and is progressing the high priority opportunities in the trading pipeline.

FY16 guidance

Barring unforeseen changes to operating conditions, DEXUS’s guidance[1] for the 12 months ending 30 June 2016 is for FFO per security growth of 5.5-6.0%, with FFO from the underlying business (excluding trading profits net of tax) expected to grow by 3.0-3.5%.

Distributions will be paid in line with free cash flow, which is expected to deliver growth in distribution per security of 5.5-6.0% for the 12 months ending 30 June 2016.

1 Barring unforeseen circumstances guidance is supported by the following assumptions: Flat like-for-like income growth across the DEXUS combined portfolios, weighted average cost of debt of circa 4.9%, trading profits of approximately $60 million, Management Operations revenue of approximately $45-50 million (including third party development management fees), $150 million of non-core property divestments, excluding any buy-back of DEXUS securities and excluding any further transactions.

Directors’ Report Continued

5. REviEw OF RESULTS AND OPERATiONS (CONTINUED)

RISKS

There are various risks that could impact DEXUS’s strategy and outlook. The nature and potential impact of these risks can change over time. Further information relating to DEXUS’s risk management framework is detailed in the Corporate Governance statement. DEXUS actively reviews and manages risks it faces over the short, medium and long term, overseen by the Board Risk Committee. A number of the important strategic risks, their potential impact and how DEXUS manages and monitors them are outlined in the table below.

Risk	Description	Potential impact	Potential impact	How DEXuS is equipped to manage and monitor this risk	How DEXuS is equipped to manage and monitor this risk
Market volatility	Volatility in equity or debt	§	Reduction in business	§	DEXUS has a high quality, diversifed portfolio which
– general	markets and GDP growth		confdence and leasing		is less sensitive to changes in investment demand
	(domestically or globally) has a material adverse effect on leasing, investment demand, or fnancing costs	§ §	activity Reduction in ability to attract and retain tenants Increased cost of	§ §	DEXUS has a low level of gearing, with a stated target range of 30-40% Further information relating to Financial risk management is detailed in note 12 of the fnancial statements
			borrowing	§	DEXUS has a diversifed source of income with
					rental income being derived from 102 properties with
					970 tenants. In addition, DEXUS derives income from
					funds management and trading activities
				§	A high proportion of DEXUS’s near term income
					is secured via lease (contract)
				§	DEXUS adopts a conservative approach to interest rate
					hedging, with 69% of debt currently hedged
				§	DEXUS tracks and reports performance through monthly
					monitoring of budgets and expenditures
				§	DEXUS tracks economic conditions and forecasts real
					estate market performance
Property	Depreciation in the value of	§	Reduction in Net Tangible	§	DEXUS has a high quality, diversifed portfolio which
valuations	DEXUS’s property investments.		Asset backing per security		is less sensitive to changes in investment demand
decline	This can be caused by changes in investment demand for commercial property and/ or changes to the property fundamentals (e.g. property	§ §	Deterioration of key credit metrics Increased cost of fnancing and/or need to refnance	§ §	DEXUS has a low level of gearing, with a stated target range of 30-40% Further information relating to Financial risk management is detailed in note 12 of the fnancial statements
	income) and/or changes to	§	Reduction in market price
	global bond rates		of DXS securities
Funds from	FFO is lower than that	§	Reduction in	§	DEXUS has a diversifed source of income with rental
Operations (FFO)	assumed in management		distributions to investors		income being derived from 102 properties with 970
decline	forecasts	§	Reduction in market		tenants. In addition, DEXUS derives income from funds
			price of DXS securities		management and trading activities
				§	A high proportion of DEXUS’s near term income
					is secured via lease/contract
				§	DEXUS adopts a conservative approach to interest rate
					hedging, with 69% of debt currently hedged
				§	DEXUS tracks and reports performance through monthly
					monitoring of budgets and expenditures
Workplace	Financial or physical impact	§	Death or serious injury	§	DEXUS maintains comprehensive work health and
health and safety	arising from an accident or event at an asset owned or managed by DEXUS	§ §	Financial loss arising from an event claim Reputational damage	§ §	safety programs Ensures compliance by site contractors and employees Maintains ongoing independent certifcation by British
		§	Legal proceedings		Standards International
Talent retention	Inability to attract and	§	Loss of property and	§	DEXUS monitors and acts upon employee opinions
	retain the talent required		platform expertise		received through the Employee Opinion Surveys and
	to execute the strategy	§	Increased operating		Culture Surveys
			costs via staff churn and	§	Annually reviews remuneration framework to benchmark
			wage impacts		against market rates
				§	Maintains succession plans for senior management
				§	Implements awareness programs covering diversity,
					gender and health in the workplace, ensuring diversity
					and equality are understood and valued

2015 dexus annual rePOrT 45

6. DiRECTORS’ DiRECTORShiPS iN OThER LiSTED ENTiTiES

The following table sets out directorships of other ASX listed entities (unless otherwise stated), not including DXFM, held by the Directors at any time in the three years immediately prior to the end of the year, and the period for which each directorship was held:

Director	Company Date appointed Date resigned
Christopher T Beare	Mnemon Group Limited Flexigroup Limited 6 November 2009 1 July 2014 27 May 2013
Elizabeth A Alexander, AM	Medibank Private Limited2 31 October 2008
Penny Bingham-Hall	Bluescope Steel Limited 29 March 2011
John C Conde, AO	Whitehaven Coal Limited 3 May 2007
	Cooper Energy Limited 25 February 2013
Tonianne Dwyer	Cardno Limited 25 June 2012
	Metcash Limited 24 June 2014
W Richard Sheppard	Echo Entertainment Group 21 November 2012
Peter B St George	Boart Longyear Limited 21 February 2007 21 May 2013
	First Quantum Minerals Limited1 20 October 2003

1 Listed for trading on the Toronto Stock Exchange in Canada and the London Stock Exchange in the United Kingdom.

2 Listed for trading on the Australian Securities Exchange since 24 November 2014.

7. PRiNCiPAL ACTiviTiES

During the year, the principal activity of the Group was to own, manage and develop high quality real estate assets and manage real estate funds on behalf of third party investors. There were no significant changes in the nature of the Group’s activities during the year.

8. TOTAL vALUE OF TRUST ASSETS

The total value of the assets of the Group as at 30 June 2015 was $10,099.1 million (2014: $9,750.9 million). Details of the basis of this valuation are outlined in the Notes to the Financial Statements and form part of this Directors’ Report.

9. LikELy DEvELOPMENTS AND EXPECTED RESULTS OF OPERATiONS

In the opinion of the Directors, disclosure of any further information regarding business strategies and future developments or results of the Group, other than the information already outlined in this Directors’ Report or the Financial Statements accompanying this Directors’ Report, would be unreasonably prejudicial to the Group.

10. SigNiFiCANT ChANgES iN ThE STATE OF AFFAiRS

The Directors are not aware of any matter or circumstance not otherwise dealt with in this Directors’ Report or the Financial Statements that has significantly or may significantly affect the operations of the Group, the results of those operations, or the state of the Group’s affairs in future financial years.

11. MATTERS SUbSEqUENT TO ThE END OF ThE FiNANCiAL yEAR

Since the end of the financial year, the Directors are not aware of any matter or circumstance not otherwise dealt with in this Directors’ Report or the Financial Statements that has significantly or may significantly affect the operations of the Group, the results of those operations, or the state of the Group’s affairs in future financial years.

12. DiSTRibUTiONS

Distributions paid or payable by the Group for the year ended 30 June 2015 were 41.04 cents per security (2014: 37.56 cents per security[1] ) as outlined in note 7 of the Notes to the Financial Statements.

13. DXFM FEES

Details of fees paid or payable by the Group to DXFM for the year ended 30 June 2015 are outlined in note 22 of the Notes to the Financial Statements and form part of this Directors’ Report.

1 All FY14 per security figures in this Report are restated to reflect the one-for-six security consolidation completed on 14 November 2014.

Directors’ Report Continued

14. iNTERESTS iN DXS SECURiTiES

The movement in securities on issue in the Group during the year and the number of securities on issue as at 30 June 2015 are detailed in note 15 of the Notes to the Financial Statements and form part of this Directors’ Report.

Details of the number of interests in the Group held by DXFM or its associates as at the end of the financial year are outlined in note 22 of the Notes to the Financial Statements and form part of this Directors’ Report.

The Group did not have any options on issue as at 30 June 2015 (2014: nil).

15. ENviRONMENTAL REgULATiON

The Group’s senior management, through its Board Risk Committee, oversee the policies, procedures and systems that have been implemented to ensure the adequacy of its environmental risk management practices. It is the opinion of this Committee that adequate systems are in place for the management of its environmental responsibilities and compliance with its various licence requirements and regulations. Further, the Committee is not aware of any material breaches of these requirements.

16. iNDEMNiFiCATiON AND iNSURANCE

The insurance premium for a policy of insurance indemnifying Directors, officers and others (as defined in the relevant policy of insurance) is paid by DEXUS Holdings Pty Limited (DXH).

PricewaterhouseCoopers (PwC or the Auditor), is indemnified out of the assets of the Group pursuant to the DEXUS Specific Terms of Business agreed for all engagements with PwC, to the extent that the Group inappropriately uses or discloses a report prepared by PwC. The Auditor, PwC, is not indemnified for the provision of services where such an indemnification is prohibited by the Corporations Act 2001.

17. AUDiT

17.1 Auditor

PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.

17.2 Non-audit services

The Group may decide to employ the Auditor on assignments, in addition to their statutory audit duties, where the Auditor’s expertise and experience with the Group are important.

Details of the amounts paid or payable to the Auditor for audit and non-audit services provided during the year are set out in note 19 of the Notes to the Financial Statements.

The Board Audit Committee is satisfied that the provision of non-audit services provided during the year by the Auditor (or by another person or firm on the Auditor’s behalf) is compatible with the standard of independence for auditors imposed by the Corporations Act 2001.

The reasons for the Directors being satisfied are:

§ A Charter of Audit Independence provides guidelines under which the Auditor may be engaged to provide non-audit services without impairing the Auditor’s objectivity or independence
§ The Charter states that the Auditor will not provide services where the Auditor may be required to review or audit its own work, including:
the design, implementation and operation of information technology systems
the design and implementation of internal accounting and risk management controls
conducting valuation, actuarial or legal services
consultancy services that include direct involvement in management decision making functions
investment banking, borrowing, dealing or advisory services
acting as trustee, executor or administrator of trust or estate
prospectus independent expert reports and being a member of the due diligence committee, and
providing internal audit services
§ The Board Audit Committee regularly reviews the performance and independence of the Auditor and whether the independence of this function has been maintained having regard to the provision of non-audit services. The Auditor has provided a written declaration to the Board regarding its independence at each reporting period and Board Audit Committee approval is required before the engagement of the Auditor to perform any non-audit service for a fee in excess of $100,000

The above Directors’ statements are in accordance with the advice received from the Board Audit Committee.

17.3 Auditor’s Independence Declaration

A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 47 and forms part of this Directors’ Report.

18. CORPORATE gOvERNANCE

DXFM’s Corporate Governance Statement is set out in a separate section of the DEXUS Property Group Annual Report.

19. ROUNDiNg OF AMOUNTS AND CURRENCy

The Group is a registered scheme of the kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments Commission, relating to the rounding off of amounts in this Directors’ Report and the Financial Statements. Amounts in this Directors’ Report and the Financial Statements have been rounded off in accordance with that Class Order to the nearest tenth of a million dollars, unless otherwise indicated. All figures in this Directors’ Report and the Financial Statements, except where otherwise stated, are expressed in Australian dollars.

20. DiRECTORS’ AUThORiSATiON

The Directors’ Report is made in accordance with a resolution of the Directors. The Financial Statements were authorised for issue by the Directors on 11 August 2015. The Directors have the power to amend and reissue the Financial Statements.

==> picture [96 x 40] intentionally omitted <==

==> picture [64 x 39] intentionally omitted <==

Christopher T Beare Chair 11 August 2015

Darren J Steinberg Chief Executive Officer 11 August 2015

the preparation of tax provisions, accounting records and financial statements

2015 dexus annual rePOrT 47

auditor’s Independence Declaration

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Consolidated statement of Comprehensive Income For the year ended 30 June 2015

		2015	2014
	note	$m	$m
REvENUE FROM ORDiNARy ACTiviTiES
Propertyrevenue	2	548.8	572.3
Proceeds from sale of inventory	10	220.1	69.3
Interest revenue		0.4	0.2
Management fee revenue		89.6	58.0
Total revenue from ordinary activities		858.9	699.8
Net fair valuegain of investmentproperties		130.4	145.7
Share of netproft of investments accounted for usingthe equitymethod	9	252.1	58.3
Net fair valuegain of interest bearingliabilities		–	12.3
Reversal ofprevious impairment of management rights	18	–	7.3
Net fair valuegain of derivatives		17.4	–
Total income		1,258.8	923.4
EXPENSES
Propertyexpenses	2	(142.8)	(141.4)
Cost of sale of inventory	10	(172.2)	(65.3)
Finance costs	4	(192.4)	(190.0)
Impairment ofgoodwill	18	(0.1)	(0.1)
Net fair value loss of derivatives		–	(2.1)
Net loss on sale of investmentproperties		(3.0)	(7.7)
Net fair value loss of interest bearingliabilities		(15.9)	–
Impairment of investments accounted for usingthe equitymethod	9	–	(3.3)
Transaction costs		–	(23.9)
Management operations,corporate and administration expenses	3	(86.3)	(71.3)
Total expenses		(612.7)	(505.1)
Foreign currencytranslation reserve transfer on disposal of foreign operations		(2.1)	0.8
Proft/(loss) before tax		644.0	419.1
Tax expense	5(a)	(25.3)	(12.5)
Proft/(loss) for theyear		618.7	406.6
OThER COMPREhENSivE iNCOME/(LOSS):
Items that maybe reclassifed toproft or loss:
Exchange differences on translatingforeign operations	16(a)	(0.3)	5.3
Foreign currencytranslation reserve transfer on disposal of foreign operations	16(a)	2.1	(0.8)
Changes in the fair value of cash fow hedges	16(a)	17.9	(9.3)
Total comprehensive income/(loss) for theyear		638.4	401.8
Proft/(loss) for theyear attributable to:
Unitholders of theparent entity		174.7	141.4
Unitholders of other stapled entities (non-controllinginterests)		444.0	265.2
Proft/(loss) for theyear		618.7	406.6
Total comprehensive income/(loss) for theyear attributable to:
Unitholders of theparent entity		192.6	132.1
Unitholders of other stapled entities (non-controllinginterests)		445.8	269.7
Total comprehensive income/(loss) for theyear		638.4	401.8

		Cents	Cents1
EARNiNgS PER UNiT ON PROFiT/(LOSS) ATTRibUTAbLE TO UNiThOLDERS OF ThE
PARENT ENTiTy
Basic earningsper unit	6	19.08	17.24
Diluted earningsper unit	6	19.08	17.24
EARNiNgS PER STAPLED SECURiTy ON PROFiT/(LOSS) ATTRibUTAbLE TO STAPLED
SECURiTy hOLDERS
Basic earningsper security	6	67.58	49.57
Diluted earningsper security	6	67.58	49.57

1 Restated to reflect the one-for-six security consolidation.

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

2015 dexus annual rePOrT 49

Consolidated statement of Financial Position as at 30 June 2015

		2015	2014
	note	$m	$m
CURRENT ASSETS
Cash and cash equivalents	17(a)	13.0	14.1
Receivables	17(b)	55.5	111.6
Non-current assets classifed as held for sale	11	5.5	139.6
Inventories	10	110.3	80.3
Derivative fnancial instruments	12(c)	17.7	8.7
Other	17(c)	27.3	8.1
Total current assets		229.3	362.4
NON-CURRENT ASSETS
Investment properties	8	6,207.3	5,926.5
Plant and equipment		20.5	10.8
Inventories	10	164.5	235.9
Investments accounted for using the equity method	9	2,795.9	2,813.9
Derivative fnancial instruments	12(c)	367.2	71.5
Deferred tax assets	5(c)	10.8	35.9
Intangible assets	18	292.2	292.6
Other		2.3	1.4
Total non-current assets		9,860.7	9,388.5
Total assets		10,090.0	9,750.9
CURRENT LiAbiLiTiES
Payables	17(d)	110.7	111.1
Current tax liabilities	5	4.2	1.3
Interest bearing liabilities	13	150.0	149.5
Provisions	17(e)	231.1	197.2
Derivative fnancial instruments	12(c)	10.8	2.4
Total current liabilities		506.8	461.5
NON-CURRENT LiAbiLiTiES
Interest bearing liabilities	13	2,624.0	2,782.1
Loans with related parties	22	–	338.4
Derivative fnancial instruments	12(c)	159.2	85.7
Deferred tax liabilities	5(d)	17.2	21.1
Provisions		2.1	4.9
Other		3.4	3.9
Total non-current liabilities		2,805.9	3,236.1
Total liabilities		3,312.7	3,697.6
Net assets		6,777.3	6,053.3
EqUiTy
Equity attributable to unitholders of the parent entity
Contributed equity	15(a)	1,990.6	1,833.4
Reserves	16(a)	8.6	(9.3)
Retained profts/(accumulated losses)	16(c)	190.3	193.0
Parent entity unitholders’ interest		2,189.5	2,017.1
EqUiTy ATTRibUTAbLE TO UNiThOLDERS OF OThER STAPLED ENTiTiES
Contributed equity	15(b)	3,939.9	3,625.7
Reserves	16(a)	42.8	41.2
Retained profts/(accumulated losses)	16(c)	605.1	369.3
Other stapled unitholders’ interest		4,587.8	4,036.2
Total equity		6,777.3	6,053.3

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

Consolidated statement of Changes in equity For the year ended 30 June 2015

		Attributable to unitholders of the parent	Attributable to unitholders of the parent	Attributable to unitholders of the parent	entity
		Contributed		Retained
	note	equity $m	Reserves $m	profts $m	Total $m
Opening balance as at 1 July 2013		1,577.7	–	181.2	1,758.9
Net proft/(loss) for the year		–	–	141.4	141.4
Other comprehensive income/(loss) for the year		–	(9.3)	–	(9.3)
Total comprehensive income for the year		–	(9.3)	141.4	132.1
Transactions with owners in their capacity as owners
Issue of additional equity	15	281.2	–	–	281.2
Buy-back of contributed equity, net of transaction costs	15	(25.5)	–	–	(25.5)
Purchase of securities, net of transaction costs	16	–	–	–	–
Security-based payments expense	16	–	–	–	–
Distributions paid or provided for	7	–	–	(129.6)	(129.6)
Total transactions with owners in their capacity as owners		255.7	–	(129.6)	126.1
Closing balance as at 30 June 2014		1,833.4	(9.3)	193.0	2,017.1
Opening balance as at 1 July 2014		1,833.4	(9.3)	193.0	2,017.1
Net proft for the year		–	–	174.7	174.7
Other comprehensive income for the year		–	17.9	–	17.9
Total comprehensive income for the year		–	17.9	174.7	192.6
Transactions with owners in their capacity as owners
Issue of additional equity	15	157.2	–	–	157.2
Purchase of securities, net of transaction costs	16	–	–	–	–
Security-based payments expense	16	–	–	–	–
Distributions paid or provided for	7	–	–	(177.4)	(177.4)
Total transactions with owners in their capacity as owners		157.2	–	(177.4)	(20.2)
Closing balance as at 30 June 2015		1,990.6	8.6	190.3	2,189.5

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

2015 dexus annual rePOrT 51

Attributable to unitholders of other stapled entities

Contributed equity $m	Reserves $m	Retained profts $m	Total $m	Total equity $m
3,106.3	36.6	289.9	3,432.8	5,191.7
–	–	265.2	265.2	406.6
–	4.5	–	4.5	(4.8)
–	4.5	265.2	269.7	401.8

569.2	–	–	569.2	850.4
(49.8)	–	–	(49.8)	(75.3)
–	(3.1)	–	(3.1)	(3.1)
–	3.2	–	3.2	3.2
–	–	(185.8)	(185.8)	(315.4)
519.4	0.1	(185.8)	333.7	459.8
3,625.7	41.2	369.3	4,036.2	6,053.3
3,625.7	41.2	369.3	4,036.2	6,053.3
–	–	444.0	444.0	618.7
–	1.8	–	1.8	19.7
–	1.8	444.0	445.8	638.4

314.2	–	–	314.2	471.4
–	(4.0)	–	(4.0)	(4.0)
–	3.8	–	3.8	3.8
–	–	(208.2)	(208.2)	(385.6)
314.2	(0.2)	(208.2)	105.8	85.6
3,939.9	42.8	605.1	4,587.8	6,777.3

Consolidated statement of Cash Flows

For the year ended 30 June 2015

		2015	2014
	note	$m	$m
CASh FLOwS FROM OPERATiNg ACTiviTiES
Receipts in the course of operations (inclusive of GST)		706.5	703.0
Payments in the course of operations (inclusive of GST)		(286.4)	(275.6)
Interest received		0.4	0.2
Finance costs paid to fnancial institutions		(144.2)	(134.6)
Distributions received from investments accounted for using the equity method		217.6	79.0
Income and withholding taxes paid		(1.0)	0.1
Proceeds from sale of property classifed as inventory		221.8	69.3
Payments for property classifed as inventory		(53.3)	(23.1)
Net cash infow/(outfow) from operating activities	20(a)	661.4	418.3
CASh FLOwS FROM iNvESTiNg ACTiviTiES
Proceeds from sale of investment properties		144.1	172.9
Payments for capital expenditure on investment properties		(93.9)	(110.0)
Payments for acquisition of investment properties		(14.8)	–
Payments for acquisition of subsidiaries		(160.0)	–
Payments for investments accounted for using the equity method		(263.9)	(1,103.4)
Transaction costs paid		(7.5)	(14.0)
Return of capital from investments accounted for using the equity method		372.6	–
Payments for management rights		–	(42.0)
Payments for plant and equipment		(12.1)	(4.0)
Net cash infow/(outfow) from investing activities		(35.5)	(1,100.5)
CASh FLOwS FROM FiNANCiNg ACTiviTiES
Proceeds from borrowings		3,003.5	4,557.8
Repayment of borrowings		(3,408.0)	(3,848.3)
Repayment of loan with related party		(338.4)	–
Proceeds from loan with related party		–	338.4
Payments for buy-back of contributed equity		–	(75.3)
Proceeds from issue of additional equity		471.4	–
Purchase of securities for security-based payments plans		(4.0)	(3.1)
Distributions paid to security holders		(351.5)	(288.3)
Net cash infow/(outfow) from fnancing activities		(627.0)	681.2
Net increase/(decrease) in cash and cash equivalents		(1.1)	(1.0)
Cash and cash equivalents at the beginning of the year		14.1	14.9
Effects of exchange rate changes on cash and cash equivalents		–	0.2
Cash and cash equivalents at the end of the year		13.0	14.1

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

2015 dexus annual rePOrT 53

about this report For the year ended 30 June 2015

iN ThiS SECTiON

This section sets out the basis upon which the Group’s Financial Statements are prepared.

Specific accounting policies are described in their respective notes to the Financial Statements. This section also shows information on new or amended accounting standards and their impact on the financial position and performance of the Group.

(a) Basis of preparation

DEXUS Property Group stapled securities are quoted on the Australian Securities Exchange under the ‘DXS’ code and comprise one unit in each of DDF, DIT, DOT and DXO. In accordance with Australian Accounting Standards, the entities within the Group must be consolidated for financial reporting purposes. The parent entity and deemed acquirer of DIT, DOT and DXO is DDF. These Financial Statements therefore represent the consolidated results of DDF, and include DDF and its controlled entities, DIT and its controlled entities, DOT and its controlled entities, and DXO and its controlled entities.

Equity attributable to other trusts stapled to DDF is a form of non-controlling interest and represents the equity of DIT, DOT and DXO. The amount of non-controlling interest attributable to stapled security holders is disclosed in the Statement of Financial Position. DDF is a for-profit entity for the purpose of preparing Financial Statements.

Each entity forming part of the Group continues as a separate legal entity in its own right under the Corporations Act 2001 and is therefore required to comply with the reporting and disclosure requirements under the Corporations Act 2001 and Australian Accounting Standards. DEXUS Funds Management Limited (DXFM) as Responsible Entity for DDF, DIT, DOT and DXO may only unstaple the Group if approval is obtained by a special resolution of the stapled security holders.

These general purpose Financial Statements have been prepared in accordance with the requirements of the Constitution of the entities within the Group, the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements and interpretations of the Australia Accounting Standards Board. Compliance with Australian Accounting Standards ensures that the Financial Statements and notes also comply with International Financial Reporting Standards (IFRS).

Amounts in these Financial Statements have been presented in Australian dollars and rounded off in accordance with ASIC Class Order 98/100 to the nearest tenth of a million dollars, unless otherwise indicated.

These Financial Statements are prepared on a going concern basis, using historical cost conventions except for investment properties, investment properties within equity accounted investments, securitybased payments, derivative financial instruments and other financial liabilities which are stated at their fair value. Refer to the specific accounting policies within the notes to the Financial Statements for the basis of valuation of assets and liabilities measured at fair value.

The Group has unutilised facilities of $758.1 million (2014: $462.3 million) (refer to note 13) and sufficient working capital and cash flows in order to fund all requirements arising from the net current asset deficiency as at 30 June 2015 of $277.5 million (2014: $99.1 million).

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, unless otherwise stated.

Critical accounting estimates

In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimates of future events. Judgements and estimates which are material to the financial report are discussed in the following notes:

Note	8	Investment properties	Page 65
Note	10	Inventories	Page 70
Note	12(b)	Interest bearing liabilities	Page 73
Note Note	12(c) 18	Derivative fnancial instruments Intangible assets	Page 78 Page 86
Note	21	Security-based payments	Page 89

(b) Principles of consolidation

These consolidated Financial Statements incorporate the assets, liabilities and results of all subsidiaries as at 30 June 2015.

(i) Controlled entities

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

(ii) Joint arrangements

Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has, rather than the legal structure of the joint arrangement.

Joint operations

Where assets are held directly as tenants in common, the Group’s proportionate share of revenues, expenses, assets and liabilities are included in their respective items of the Statement of Financial Position and Statement of Comprehensive Income.

Joint ventures

Investments in joint ventures are accounted for using the equity method. Under this method, the Group’s share of the joint ventures’ post-acquisition profits or losses is recognised in the Statement of Comprehensive Income and distributions received from joint ventures are recognised as a reduction of the carrying amount of the investment.

(iii) Employee share trust

The Group has formed a trust to administer the Group’s securities-based employee benefits. The employee share trust is consolidated as the substance of the relationship is that the trust is controlled by the Group.

About this Report Continued

(c) Foreign currency

The Financial Statements are presented in Australian dollars.

Foreign currency transactions are translated into the Australian dollars functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of financial assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.

On 18 November 2014, settlement occurred on the sale of Lumley Centre in New Zealand. The cumulative historical exchange differences recognised in the foreign currency translation reserve were recycled to the Statement of Comprehensive Income on disposal of this foreign operation.

As at 30 June 2015, the Group has no investments in foreign operations.

AASB 9 Financial Instruments (effective 1 July 2018).

AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. It also sets out new rules for hedge accounting and impairment of financial assets. The Group intends to apply the standard from 1 July 2018. Application of this standard will not affect any of the amounts recognised in the Financial Statements but will require the disclosure of additional information.

AASB 15 Revenue from Contracts with Customers (effective 1 July 2018).

AASB 15 Revenue from Contracts with Customers clarifies the principles for recognising revenue from contracts with customers. It applies to all contracts with customers except leases, financial instruments and insurance contracts. The Group intends to apply the standard from 1 July 2018 and does not expect any significant impacts.

(d) Goods and services tax

Revenues, expenses and capital assets are recognised net of any amount of Australian Goods and Services Tax (GST), except where the amount of GST incurred is not recoverable. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Cash flows are included in the Statement of Cash Flows on a gross basis. The GST component of cash flows arising from investing and financing activities that is recoverable from or payable to the Australian Taxation Office is classified as cash flows from operating activities.

(e) New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2015 reporting period. The Group’s assessment of the impact of these new standards and interpretations is set out below:

(f) Notes to the Financial Statements

The notes include information which is required to understand the Financial Statements and is material and relevant to the operations, financial position and performance of the Group. Information is considered material and relevant if, for example:

§ The amount in question is significant because of its size or nature
§ It is important in understanding the results of the Group
§ It helps to explain the impact of significant changes in the Group’s business
§ It relates to an aspect of the Group’s operations that is important to its future performance

The notes to the Financial Statements have been reordered and rewritten in order to provide more meaningful information to the readers of the Financial Statements. The notes are organised into the following sections:

				Capital and fnancial
				risk management and
Group performance		Property portfolio assets		working capital	Other disclosures
1.	Operating segments	8.	Investment properties	12. Capital and fnancial risk	18. Intangible assets
2.	Property revenue and	9.	Investments accounted for	management	19. Audit, taxation and transaction
	expenses		using the equity method	13. Interest bearing liabilities	services fees
3.	Management operations,	10.	Inventories	14. Commitments and	20. Reconciliation of net proft to
	corporate and administration expenses	11.	Non-current assets classifed as held for sale	contingencies 15. Contributed equity	net cash fows from operating activities
4.	Finance costs			16. Reserves and retained	21. Security-based payments
5.	Taxation			profts	22. Related parties
6.	Earnings per unit			17. Working capital	23. Parent entity disclosures
7.	Distributions paid				24. Subsequent events
	and payable

2015 dexus annual rePOrT 55

notes to the Financial statements

Group Performance

iN ThiS SECTiON

This section explains the results and performance of the Group.

It provides additional information about those individual line items in the Financial Statements that the Directors consider most relevant in the context of the operations of the Group, including: results by operating segment, property revenue and expenses, management operations, corporate and administration expenses, finance costs, taxation, earnings per unit and distributions paid and payable.

The key indicators of the Group performance are detailed in the following table:

	2015	2014	2013	2012	2011
Statutory net proft ($m)	618.7	406.6	514.5	182.9	555.1
FFO1($m)	544.5	446.6	388.0	395.2	386.6
AFFO1($m)	369.8	310.7	290.1	269.3	234.1
Distribution ($m)	385.6	315.4	282.1	257.4	250.7
NTA2($m)	6,485	5,761	4,948	4,784	4,878
FFO1per security3(cents)	59.5	54.4	49.4	49.0	48.0
AFFO1per security3(cents)	40.4	37.9	36.9	33.4	29.0
Distribution per security3(cents)	41.04	37.56	36.00	32.10	31.08
NTA2per security3($)	6.68	6.36	6.31	6.00	6.05
Return on equity4	11.5%	6.7%	11.2%	4.5%	11.8%
Gearing (look-through)5	28.5%	33.7%	29.0%	27.2%	28.4%

1 Funds From Operations (FFO) is defined in note 1.

FFO and AFFO have been restated for previous periods to reflect the PCA definition.

2 Net Tangible Assets (NTA) is calculated as total assets less intangible assets.

3 Restated to reflect the one-for-six security consolidation.

4 Change in NTA per security plus distribution per security divided by previous year’s NTA per security.

5 Gearing calculation is detailed in note 12(a) and is adjusted for cash and for debt in equity accounted investments.

NOTE 1. OPERATiNg SEgMENTS

(a) Description of segments

The Chief Operating Decision Maker (CODM) has been identified as the Board of Directors as they are responsible for the strategic decision making within the Group. DXS management has identified the Group’s operating segments based on the sectors analysed within the management reports reviewed by the CODM in order to monitor performance across the Group and to appropriately allocate resources. Refer to the table below for a brief description of the Group’s operating segments.

Segment	Description
Offce	Offce space with any associated retail space; as well as car parks and offce developments in Australia
	and New Zealand.
Industrial	Domestic industrial properties, industrial estates and industrial developments.
Property management	Property management services for third party clients and owned assets.
Funds management	Funds management of third party client assets.
Development and trading	Revenue earned and costs incurred by the Group on developments and inventory.
All other segments	Corporate expenses associated with maintaining and operating the Group. This segment also includes
	the centralised treasury function.

notes to the Financial Statements Group Performance (continued)

NOTE 1. OPERATiNg SEgMENTS (CONTINUED)

(b) Segment information provided to the CODM

	Ofce	Industrial
30 June 2015	$m	$m
Segment performance measures
Property revenue and property management fees	607.4	133.1
Proceeds from sale of inventory	–	–
Management fee revenue	–	–
Total operating segment revenue	607.4	133.1
Property expenses and property management salaries	(156.0)	(25.1)
Management operations expenses	–	–
Corporate and administration expenses	(7.4)	(1.7)
Cost of sale of inventory	–	–
Interest revenue	–	–
Finance costs	–	–
Incentive amortisation and rent straight-line	73.9	6.0
Tax expense	–	–
Coupon income and other	15.4	–
Funds From Operations (FFO)	533.3	112.3
Net fair value gain/(loss) of investment properties	213.5	27.5
Net fair value gain/(loss) of derivatives	–	–
Foreign currency translation reserve transfer	–	–
Net gain/(loss) on sale of investment properties	(2.4)	(0.7)
Net fair value gain/(loss) of interest bearing liabilities	–	–
Incentive amortisation and rent straight-line	(73.9)	(6.0)
Deferred tax (expense)/beneft	–	–
Coupon income	(15.5)	–
Net proft/(loss) attributable to stapled security holders	655.0	133.1
Segment asset measures
Investment properties	4,795.5	1,411.8
Non-current assets held for sale	–	5.5
Inventories	–	–
Equity accounted investment properties	2,983.9	61.9
Direct property portfolio	7,779.4	1,479.2

2015 dexus annual rePOrT 57

Property	Funds	Development	All other
management	management	and trading	segments	Eliminations	Total
$m	$m	$m	$m	$m	$m

17.2	–	–	–	(0.8)	756.9
–	–	220.1	–	–	220.1
32.5	40.5	6.4	–	–	79.4
49.7	40.5	226.5	–	(0.8)	1,056.4
(12.2)	–	–	–	–	(193.3)
(24.3)	(15.8)	(6.2)	–	–	(46.3)
–	–	–	(30.4)	0.8	(38.7)
–	–	(172.2)	–	–	(172.2)
–	–	–	1.0	–	1.0
–	–	–	(151.8)	–	(151.8)
–	–	–	–	–	79.9
–	–	(5.3)	(0.8)	–	(6.1)
–	–	–	0.2	–	15.6
13.2	24.7	42.8	(181.8)	–	544.5
–	–	–	–	–	241.0
–	–	–	(31.1)	–	(31.1)
–	–	–	(2.1)	–	(2.1)
–	–	–	–	–	(3.1)
–	–	–	(15.9)	–	(15.9)
–	–	–	–	–	(79.9)
–	–	–	(19.2)	–	(19.2)
–	–	–	–	–	(15.5)
13.2	24.7	42.8	(250.1)	–	618.7

–	–	–	–	–	6,207.3
–	–	–	–	–	5.5
–	–	274.8	–	–	274.8
–	–	–	–	–	3,045.8
–	–	274.8	–	–	9,533.4

notes to the Financial Statements Group Performance (continued)

NOTE 1. OPERATiNg SEgMENTS (CONTINUED)

(b) Segment information provided to the CODM (continued)

	Ofce	Industrial
30 June 2014	$m	$m
Segment performance measures
Property revenue and property management fees	540.4	146.3
Proceeds from sale of inventory	–	–
Management fee revenue	–	–
Total operating segment revenue	540.4	146.3
Property expenses & property management salaries	(137.9)	(25.8)
Management operations expenses	–	–
Corporate and administration expenses	(7.6)	(3.2)
Cost of sale of inventory	–	–
Interest revenue	–	–
Finance costs	–	–
Incentive amortisation and rent straight-line	52.6	5.5
Tax expense	–	–
Coupon income and net CPA distribution income	7.9	–
Funds From Operations (FFO)	455.4	122.8
Net fair value gain of investment properties	155.3	10.2
Net fair value loss of derivatives	–	–
Finance costs attributable to sales transactions	–	–
CPA transaction costs	–	–
Foreign currency translation reserve transfer	–	–
Net loss on sale of investment properties	(4.2)	(4.1)
Net fair value gain of interest bearing liabilities	–	–
Incentive amortisation and rent straight-line	(52.6)	(5.5)
Reversal of impairment of management rights	–	–
Deferred tax expense	–	–
Coupon income and net CPA distribution income	(7.9)	–
Net proft/(loss) attributable to stapled security holders	546.0	123.4
Segment asset measures
Investment properties	4,673.6	1,252.9
Non-current assets held for sale	130.1	9.5
Inventories	–	–
Equity accounted investment properties	2,717.8	29.3
Direct property portfolio	7,521.5	1,291.7

2015 dexus annual rePOrT 59

Property	Funds	Development	All other
management	management	and trading	segments	Eliminations	Total
$m	$m	$m	$m	$m	$m

13.6	–	–	–	(0.6)	699.7
–	–	69.3	–	–	69.3
22.5	32.0	1.4	–	–	55.9
36.1	32.0	70.7	–	(0.6)	824.9
(8.9)	–	–	–	–	(172.6)
(17.4)	(13.9)	(3.0)	–	–	(34.3)
–	–	–	(27.5)	0.6	(37.7)
–	–	(65.3)	–	–	(65.3)
–	–	–	0.7	–	0.7
–	–	–	(140.1)	–	(140.1)
–	–	0.3	–	–	58.4
–	–	–	(0.5)	–	(0.5)
–	–	–	5.2	–	13.1
9.8	18.1	2.7	(162.2)	–	446.6
–	–	–	–	–	165.5
–	–	–	(52.9)	–	(52.9)
–	–	–	(4.5)	–	(4.5)
–	–	–	(76.7)	–	(76.7)
–	–	–	0.8	–	0.8
–	–	–	–	–	(8.3)
–	–	–	12.3	–	12.3
–	–	(0.3)	–	–	(58.4)
–	–	–	7.3	–	7.3
–	–	–	(12.0)	–	(12.0)
–	–	–	(5.2)	–	(13.1)
9.8	18.1	2.4	(293.1)	–	406.6

–	–	–	–	–	5,926.5
–	–	–	–	–	139.6
–	–	316.2	–	–	316.2
–	–	–	–	–	2,747.1
–	–	316.2	–	–	9,129.4

notes to the Financial Statements Group Performance (continued)

NOTE 1. OPERATiNg SEgMENTS (CONTINUED)

(c) Other segment information

(i) Funds From Operations (FFO)

On 1 July 2014, the Group adopted the Property Council of Australia definition of FFO. Comparative information has been adjusted to reflect this change. The Directors consider FFO to be a measure that reflects the underlying performance of the Group. FFO is calculated as net profit for the year adjusted for: property revaluations, impairments, derivative and FX mark-to-market impacts, fair value movements of interest bearing liabilities, amortisation of tenant incentives, gain/loss on sale of certain assets, straight line rent adjustments, deferred tax expense/benefit, rental guarantees, coupon income and distribution income net of funding costs.

(ii) Reconciliation of segment revenue to the Statement of Comprehensive Income

	2015	2014
	$m	$m
Gross operating segment revenue	1,056.4	824.9
Share of property revenue from joint ventures	(208.1)	(127.4)
Share of management fees charged to joint ventures	10.2	2.1
Interest revenue	0.4	0.2
Total revenue from ordinary activities	858.9	699.8

(iii) Reconciliation of segment assets to the Statement of Financial Position

The amounts provided to the CODM as a measure of segment assets is the direct property portfolio. The direct property portfolio values are allocated based on the operations of the segment and physical location of the asset and are measured in a manner consistent with the Statement of Financial Position. The reconciliation below reconciles the total direct property portfolio balance to total assets in the Statement of Financial Position.

	2015	2014
	$m	$m
Direct property portfolio1	9,533.4	9,129.4
Cash and cash equivalents	13.0	14.1
Receivables	55.5	111.6
Intangible assets	292.2	292.6
Derivative fnancial instruments	384.9	80.2
Deferred tax assets	10.8	35.9
Plant and equipment	20.5	10.8
Prepayments and other assets2	(220.3)	76.3
Total assets	10,090.0	9,750.9

1 Includes the Group’s portion of investment properties accounted for using the equity method.

2 Other assets include the Group’s share of total net assets of its investments accounted for using the equity method less the Group’s share of the investment property value which is included in the direct property portfolio.

2015 dexus annual rePOrT 61

NOTE 2. PROPERTy REvENUE AND EXPENSES

Rental revenue is recognised on a straight-line basis over the lease term for leases with fixed rent review clauses.

Prospective tenants may be offered incentives as an inducement to enter into operating leases. These incentives may take various forms including cash payments, rent free periods, or a contribution to certain lessee costs such as fit-out costs or relocation costs. The costs of incentives are recognised as a reduction of rental revenue on a straight-line basis from the lease commencement date to the end of the lease term. The carrying amount of the lease incentives is reflected in the fair value of investment properties.

	2015	2014
	$m	$m
Rent and recoverable outgoings	549.3	568.6
Incentive amortisation	(61.9)	(59.5)
Other revenue	61.4	63.2
Total property revenue	548.8	572.3

Property expenses of $142.8 million (2014: $141.4 million) include rates, taxes and other property outgoings incurred in relation to investment properties.

NOTE 3. MANAgEMENT OPERATiONS, CORPORATE AND ADMiNiSTRATiON EXPENSES

	2015	2014
	$m	$m
Audit, taxation, legal and other professional fees	6.6	3.7
Depreciation and amortisation	2.8	2.3
Employee benefts expense and other staff expenses	69.2	56.9
Administration and other expenses	7.7	8.4
Management operations, corporate and administration expenses	86.3	71.3

NOTE 4. FiNANCE COSTS

Borrowing costs include interest, amortisation or ancillary costs incurred in connection with arrangement of borrowings and net fair value movements of interest rate swaps. Borrowing costs are expensed as incurred unless they relate to qualifying assets.

Qualifying assets include investment properties and inventories which take more than 12 months to develop for their intended use or sale. In these circumstances, borrowing costs are capitalised to the cost of the asset during the period of time that is required to complete and develop the asset for its intended use or sale. To the extent that funds are borrowed generally to fund development, the amount of borrowing costs to be capitalised to qualifying assets must be determined by using a weighted average capitalisation rate.

	2015	2014
	$m	$m
Interest paid/payable	135.8	135.5
Net fair value loss of interest rate swaps	57.7	51.3
Amount capitalised	(6.0)	(6.1)
Other fnance costs	4.9	4.8
Finance costs attributable to sales transactions	–	4.5
Total fnance costs	192.4	190.0

The average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 7.00% (2014: 7.00%).

notes to the Financial Statements Group Performance (continued)

NOTE 5. TAXATiON

Under current Australian income tax legislation, DDF, DIT and DOT are not liable for income tax provided they satisfy certain legislative requirements, which were met in the current and previous financial years. DXO is liable for income tax and has formed a tax consolidated group with its wholly owned and controlled Australian entities. As a consequence, these entities are taxed as a single entity.

Income tax expense is comprised of current and deferred tax expense. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is recognised in other comprehensive income or directly in equity, respectively.

Current tax expense represents the expense relating to the expected taxable income at the applicable rate of the financial year.

Deferred tax expense represents the tax expense in respect of the future tax consequences of recovering or settling the carrying amount of an asset or liability. Deferred income tax liabilities are recognised for all taxable temporary differences. Deferred income tax assets are recognised for all deductible temporary differences and unused tax losses, to the extent it is probable that future taxable profit will be available to utilise them.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.

The carrying amount of deferred income tax assets is reviewed at balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to utilise them.

DOT NZ Sub-Trust No.1, a wholly owned Australian sub-trust of DOT, is liable for New Zealand corporate tax on its New Zealand taxable income at the rate of 28%. In addition, until November 2014 when the Group disposed of its property in New Zealand, a deferred tax liability and its related deferred tax expense was recognised on differences between the tax cost base and the accounting carrying value of the New Zealand property.

(a) Income tax (expense)/benefit

(a) Income tax (expense)/beneft
		2015	2014
	note	$m	$m
Current tax (expense)/beneft		(0.8)	(0.5)
Deferred tax (expense)/beneft		(24.5)	(12.0)
Total tax (expense)/beneft		(25.3)	(12.5)
Deferred income tax expense included in income tax (expense)/beneft comprises:
(Decrease)/increase in deferred tax assets	5(c)	(25.1)	(3.5)
(Increase)/decrease in deferred tax liabilities	5(d)	0.6	(8.5)
Total deferred tax expense		(24.5)	(12.0)

(b) Reconciliation of income tax (expense)/benefit to net profit

(b) Reconciliation of income tax (expense)/beneft to net proft
	2015	2014
	$m	$m
Proft/(loss) before tax	644.0	419.1
Less amounts not subject to income tax	(551.7)	(357.7)
	92.3	61.4
Prima facie tax (expense)/beneft at the Australian tax rate of 30% (2014: 30%)	(27.7)	(18.4)
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
Depreciation and amortisation	2.1	2.3
Reversal of previous impairment	–	2.2
Movements in the carrying value and tax cost base of properties	7.7	0.2
Accounting loss on sale of assets	(7.2)	(0.1)
Reversal of prior year income tax liability	–	1.0
Other timing differences	(0.2)	0.3
	2.4	5.9
Tax (expense)/beneft	(25.3)	(12.5)

2015 dexus annual rePOrT 63

(c) Deferred tax assets

(c) Deferred tax assets
	2015	2014
	$m	$m
The balance comprises temporary differences attributable to:
Derivative fnancial instruments	–	0.1
Tax losses	1.0	25.2
Employee provisions	8.3	9.6
Other	1.5	1.0
Total non-current assets – deferred tax assets	10.8	35.9
Movements:
Opening balance at the beginning of the year	35.9	39.4
(Utilisation)/recognition of tax losses	(24.3)	(2.3)
Movement in deferred tax asset arising from temporary differences	(0.8)	(1.2)
(Charged)/credited to the Statement of Comprehensive Income	(25.1)	(3.5)
Closing balance at the end of the year	10.8	35.9

The tax losses are expected to be fully utilised by 30 June 2016.

(d) Deferred tax liabilities

(d) Deferred tax liabilities
	2015	2014
	$m	$m
The balance comprises temporary differences attributable to:
Derivatives fnancial instruments	2.2	2.8
Intangible assets	1.9	2.0
Investment properties	12.7	16.0
Other	0.4	0.3
Total non-current liabilities – deferred tax liabilities	17.2	21.1
Movements:
Opening balance at the beginning of the year	21.1	12.1
Movement in deferred tax liability arising from temporary differences	(0.6)	8.5
Transfer to current tax liability	(3.3)	–
Foreign currency translation	–	0.5
Charged/(credited) to the Statement of Comprehensive Income	(3.9)	9.0
Closing balance at the end of the year	17.2	21.1

notes to the Financial Statements Group Performance (continued)

NOTE 6. EARNiNgS PER UNiT

Earnings per unit are determined by dividing the net profit attributable to unitholders by the weighted average number of ordinary units outstanding during the year. Diluted earnings per unit are adjusted from the basic earnings per unit by taking into account the impact of dilutive potential units.

The weighted average number of units has been adjusted to reflect the one-for-six security consolidation.

(a) Net profit used in calculating basic and diluted earnings per unit

(a) Net proft used in calculating basic and diluted earnings per unit
	2015	2014
	$m	$m
Proft attributable to unitholders of the parent entity	174.7	141.4
Proft attributable to stapled security holders	618.7	406.6

(b) Weighted average number of units used as a denominator

(b) Weighted average number of units used as a denominator
	2015	2014
	no. of	no. of
	securities	securities1
Weighted average number of units outstanding used in calculation of basic and diluted earnings per unit	915,462,824	820,257,691

1 Restated to reflect the one-for-six security consolidation.

NOTE 7. DiSTRibUTiONS PAiD AND PAyAbLE

Distributions are recognised when declared.

(a) Distribution to security holders

	2015	2014
	$m	$m
31 December (paid 27 February 2015)	178.2	142.1
30 June (payable 31 August 2015)	207.4	173.3
Total distributions to security holders	385.6	315.4

(b) Distribution rate

(b) Distribution rate
	2015	2014
	Cents per	Cents per
	security	security1
31 December (paid 27 February 2015)	19.68	18.42
30 June (payable 31 August 2015)	21.36	19.14
Total distributions	41.04	37.56

1 Restated to reflect the one-for-six security consolidation.

(c) Franked dividends

(c) Franked dividends
	2015	2014
	$m	$m
Opening balance at the beginning of the year	9.8	16.2
Franking credits utilised for payment of distribution	–	(6.4)
Closing balance at the end of the year	9.8	9.8

2015 dexus annual rePOrT 65

notes to the Financial statements

Property Portfolio assets

iN ThiS SECTiON

The following table summarises the property portfolio assets detailed in this section:

		Ofce	Industrial	Total
30 June 2015	note	$m	$m	$m
Investment properties	8	4,795.5	1,411.8	6,207.3
Equity accounted investments	9	2,983.9	61.9	3,045.8
Inventories	10	42.9	231.9	274.8
Assets held for sale	11	–	5.5	5.5
Total		7,822.3	1,711.1	9,533.4

These assets are used to generate the Group’s performance and are considered to be the most relevant to the operations of the Group. The assets are detailed in the following notes:

§ Investment properties: relates to investment properties, both stabilised and under development
§ Investments accounted for using the equity method: provides summarised financial information on the material joint ventures and other joint ventures. The Group’s joint ventures comprise interests in property portfolio assets held through investments in trusts
§ Inventories: relates to the Group’s ownership of industrial and office assets or land held for repositioning, development and sale
§ Non-current assets classified as held for sale: relates to investment properties which are expected to be sold within 12 months of the balance sheet date and are currently being marketed for sale

The list of property portfolio assets is detailed in the Property Synopsis, available at www.dexus.com/synopsis

NOTE 8. iNvESTMENT PROPERTiES

The Group’s investment properties consist of properties held for long-term rental yields and/or capital appreciation and property that is being constructed or developed for future use as investment property. Investment properties are initially recognised at cost including transaction costs. Investment properties are subsequently recognised at fair value in the Financial Statements.

The basis of valuations of investment properties is fair value, being the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date.

Changes in fair values are recorded in the Statement of Comprehensive Income. The gain or loss on disposal of an investment property is calculated as the difference between the carrying amount of the asset at the date of disposal and the net proceeds from disposal and is included in the Statement of Comprehensive Income in the year of disposal.

Subsequent redevelopment and refurbishment costs (other than repairs and maintenance) are capitalised to the investment property where they result in an enhancement in the future economic benefits of the property.

Leasing fees incurred and incentives provided are capitalised and amortised over the lease periods to which they relate.

notes to the Financial Statements Property Portfolio Assets (continued)

NOTE 8. iNvESTMENT PROPERTiES (CONTINUED)

(a) Reconciliation

(a) Reconciliation
		Ofce	Industrial	Develop- ment	2015	2014
	note	$m	$m	$m	$m	$m
Opening balance at the beginning of the year		4,673.6	1,213.9	39.0	5,926.5	6,085.0
Additions		42.4	8.3	11.2	61.9	71.9
Acquisitions		–	114.4	–	114.4	–
Lease incentives		62.4	14.9	–	77.3	75.4
Amortisation of lease incentives		(53.4)	(7.0)	–	(60.4)	(57.4)
Rent straightlining		2.5	1.0	–	3.5	8.4
Disposals		(0.2)	(1.6)	(6.9)	(8.7)	(172.5)
Transfers to non-current assets classifed as held for sale	11	–	(5.5)	–	(5.5)	(139.6)
Transfers to inventories	10	(30.4)	–	(1.6)	(32.0)	(101.4)
Net fair value gain/(loss) of investment properties		98.6	32.3	(0.6)	130.3	145.7
Foreign exchange differences		–	–	–	–	11.0
Closing balance at the end of the year		4,795.5	1,370.7	41.1	6,207.3	5,926.5

Acquisitions

§ On 16 January 2015, settlement occurred on the acquisition of Lakes Business Park, 2-13 Lord Street, Botany, for $153.5 million excluding acquisition costs. This comprises $109.8 million ($114.4 million including acquisition costs) classified as investment property and $43.7 million ($45.6 million including acquisition costs) classified as inventory. Refer note 10

Disposals

§ On 23 January 2015, 79A Egerton Street, Silverwater, NSW, was disposed of for gross proceeds of $1.7 million (carrying value of $1.6 million)

§ During the year, three land parcels of Quarry Greystanes, NSW, were disposed of for gross proceeds of $6.3 million (carrying value of $6.9 million)

(b) Valuation process

Independent valuations are carried out for each individual property at least once every three years by a member of the Australian Property Institute of Valuers. Each valuation firm and its signatory valuer are appointed on the basis that they are engaged for no more than three consecutive valuations. Independent valuations may be undertaken earlier where the Responsible Entity believes there is potential for a material change in the fair value of the property being the greatest of 5% of the asset value, or $5 million.

The Group’s investment properties are required to be internally valued at least every six months unless they have been independently valued during the current reporting period. Internal valuations are compared to the carrying value of investment properties at the reporting date. Where the Directors determine the internal valuations present a more reliable estimate of fair value the internal valuation is adopted as book value. Internal valuations are performed by the Group’s internal valuers who hold recognised relevant professional qualifications and have previous experience as property valuers from major real estate valuation firms.

An appropriate valuation methodology is utilised according to asset class. In relation to office and industrial assets this includes the capitalisation approach (market approach) and the discounted cash flow approach (income approach). The valuation is also compared to, and supported by, direct comparison to recent market transactions. The adopted capitalisation rates and discount rates are determined based on industry expertise and knowledge and, where possible, a direct comparison to third party rates for similar assets in a comparable location. Rental revenue from current leases and assumptions about future leases, as well as any expected operational cash outflows in relation to the property, are also built into each asset assessment of fair value.

In relation to development properties under construction for future use as investment property, where reliably measurable, fair value is determined based on the market value of the property on the assumption it had already been completed at the valuation date (using the methodology as outlined above) less costs still required to complete the project, including an appropriate adjustment for industry benchmarked profit and development risk.

2015 dexus annual rePOrT 67

(c) Fair value measurement, valuation techniques and inputs

The following table represents the level of the fair value hierarchy and the associated unobservable inputs utilised in the fair value measurement for each class of investment property.

Class of property Fair value hierarchy	Fair value Inputs used to measure fair value 2015 $’000 2014 $’000	Range of unobservable inputs
		2015 2014
Offce1 Level 3	4,795.5 4,673.6 Adopted capitalisation rate Adopted discount rate Adopted terminal yield Current net market rental (per sqm) 10 year average market rental growth	5.83% – 8.25% 7.76% – 9.50% 5.87% – 8.50% $338 – $1,141 2.14% – 3.84% 6.05% – 8.50% 8.09% – 9.50% 6.05% – 12.65% $334 – $1,065 2.10% – 3.87%
Industrial Level 3	1,370.7 1,213.9 Adopted capitalisation rate Adopted discount rate Adopted terminal yield Current net market rental (per sqm) 10 year average market rental growth	6.75% – 11.00% 8.25% – 11.50% 7.00% – 11.00% $40 – $305 2.45% – 3.52% 7.13% – 11.00% 9.00% – 11.50% 7.63% – 11.00% $43 – $300 2.52% – 3.26%
Development Level 3	41.1 39.0 Adopted capitalisation rate Land rate (per sqm)	6.50% $35 – $418 7.13% $50 – $418
Total	6,207.3 5,926.5

1 Excludes car parks.

Key estimates: inputs used to measure fair value of investment properties

Judgement is required in determining the following key assumptions:

§ Adopted capitalisation rate: The rate at which net market rental revenue is capitalised to determine the value of a property. The rate is determined with regard to market evidence and the prior external valuation
§ Adopted discount rate: The rate of return used to convert cash flows, payable or receivable in the future, into present value. It reflects the opportunity cost of capital, that is, the rate of return the cash can earn if put to other uses having similar risk. The rate is determined with regard to market evidence and the prior external valuation
§ Adopted terminal yield: The capitalisation rate used to convert the future net market rental revenue into an indication of the anticipated value of the property at the end of the holding period when carrying out a discounted cash flow calculation. The rate is determined with regard to market evidence and the prior external valuation
§ Net market rental (per sqm): The net market rent is the estimated amount for which a property should lease between a lessor and a lessee on appropriate lease terms in an arm’s length transaction
§ 10 year average market rental growth: The expected annual rate of change in market rent over a 10 year forecast period in alignment with expected market movements. The rate is determined with reference to forecast market movements
§ Land rate (per sqm): The land rate is the market land value per sqm

(d) Sensitivity information

Significant movement in any one of the inputs listed in the table above may result in a change in the fair value of the Group’s investment properties as shown below:

Signifcant inputs	Fair value measurement sensitivity to signifcant increase in input	Fair value measurement sensitivity to signifcant decrease in input
Adopted capitalisation rate
Adopted discount rate	Decrease	Increase
Adopted terminal yield
Net market rental (per sqm)
10 year average market rental growth	Increase	Decrease
Land rate (per sqm)

notes to the Financial Statements Property Portfolio Assets (continued)

NOTE 8. iNvESTMENT PROPERTiES (CONTINUED)

(d) Sensitivity information (continued)

Generally, a change in the assumption made for the adopted capitalisation rate is often accompanied by a directionally similar change in the adopted terminal yield. The adopted capitalisation rate forms part of the capitalisation approach whilst the adopted terminal yield forms part of the discounted cash flow approach.

Under the capitalisation approach, the net market rental has a strong interrelationship with the adopted capitalisation rate as the fair value of the investment property is derived by capitalising, in perpetuity, the total net market rent receivable. An increase (softening) in the adopted capitalisation rate may offset the impact to fair value of an increase in the total net market rent. A decrease (tightening) in the adopted capitalisation rate may also offset the impact to fair value of a decrease in the total net market rent. A directionally opposite change in the total net market rent and the adopted capitalisation rate may increase the impact to fair value.

The discounted cash flow is primarily made up of the discounted cash flow of net income over the cashflow period and the discounted terminal value (which is largely based upon market rents grown at forecast market rental growth rates capitalised at an adopted terminal yield). An increase (softening) in the adopted discount rate may offset the impact to fair value of a decrease (tightening) in the adopted terminal yield. A decrease (tightening) in the discount rate may offset the impact to fair value of an increase (softening) in the adopted terminal yield. A directionally similar change in the adopted discount rate and the adopted terminal yield may increase the impact to fair value.

A decrease (softening) in the forecast rental growth rate may result in a negative impact on the discounted cash flow approach value whilst a strengthening may have a positive impact on the value under the same approach.

(e) Investment properties pledged as security

Refer to note 13 for information on investment properties pledged as security.

NOTE 9. iNvESTMENTS ACCOUNTED FOR USiNg ThE EqUiTy METhOD

Investments are accounted for in the Financial Statements using the equity method of accounting (refer to the ‘About this Report’ section). Information relating to these entities is set out below:

name of entity	Ownership interest 2015 $m 2014 $m 2015 % 2014 %
Bent Street Trust	33.3 33.3 264.2 250.2
DEXUS Creek Street Trust	50.0 50.0 131.5 131.8
DEXUS Martin Place Trust	50.0 50.0 89.7 81.5
Grosvenor Place Holding Trust1,2	50.0 50.0 303.3 293.5
Site 6 Homebush Bay Trust1	50.0 50.0 37.2 37.5
Site 7 Homebush Bay Trust1	50.0 50.0 49.8 50.8
DEXUS 480 Q Holding Trust	50.0 50.0 149.7 82.9
DEXUS Kings Square Trust	50.0 50.0 165.7 88.8
DEXUS Offce Trust Australia	50.0 50.0 1,546.3 1,777.8
DEXUS Industrial Trust Australia	50.0 50.0 57.4 19.1
DEXUS Eagle Street Pier Trust	50.0 – 1.1 –
Total investments accounted for using the equity method	2,795.9 2,813.9

1 These entities are 50% owned by DEXUS Office Trust Australia. The Group’s economic interest is therefore 75% when combined with the interest held by DEXUS Office Trust Australia. These entities are classified as joint ventures and accounted for using the equity method as a result of contractual arrangements requiring unanimous decisions on all relevant matters.

2 Grosvenor Place Holding Trust owns 50% of Grosvenor Place, 225 George Street, Sydney, NSW. The Group’s economic interest in this property is therefore 37.5%.

The above entities were formed in Australia and their principal activity is property investment in Australia.

2015 dexus annual rePOrT 69

The table below provides summarised financial information for the Group’s share of joint ventures that are material, as well as other individually immaterial joint ventures.

	DEXuS	Ofce	Grosvenor Place	Grosvenor Place	Bent Street	Bent Street	Other	joint
	Trust Australia		Holding Trust		Trust		ventures		Total
Summarised Statement of	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
Financial Position	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Current assets
Cash and cash equivalents	6.6	21.7	0.8	0.4	1.3	0.8	3.4	3.2	12.1	26.1
Other current assets	3.9	6.7	0.6	0.7	0.4	2.9	5.0	4.4	9.9	14.7
Total current assets	10.5	28.4	1.4	1.1	1.7	3.7	8.4	7.6	22.0	40.8
Non-current assets
Investment properties	1,567.9	1,506.9	304.6	295.5	265.6	250.3	711.9	505.3	2,850.0	2,558.0
Investments accounted for
using the equity method	195.2	188.2	–	–	–	–	–	–	195.2	188.2
Loan to related party1	–	338.4	–	–	–	–	–	–	–	338.4
Other non current assets	0.4	–	–	–	–	–	0.1	–	0.5	–
Total non-current assets	1,763.5	2,033.5	304.6	295.5	265.6	250.3	712.0	505.3	3,045.7	3,084.6
Current liabilities
Provision for distribution	11.0	63.7	–	1.8	1.8	2.3	0.2	1.0	13.0	68.8
Interest bearing liabilities	172.0	73.5	–	–	–	–	–	–	172.0	73.5
Other current liabilities	33.6	34.7	2.7	1.3	1.4	1.5	38.0	19.5	75.7	57.0
Total current liabilities	216.6	171.9	2.7	3.1	3.2	3.8	38.2	20.5	260.7	199.3
Non-current liabilities
Borrowings	11.1	112.2	–	–	–	–	–	–	11.1	112.2
Total non-current liabilities	11.1	112.2	–	–	–	–	–	–	11.1	112.2
Net assets	1,546.3	1,777.8	303.3	293.5	264.1	250.2	682.2	492.4	2,795.9	2,813.9
Reconciliation of
carrying amounts:
Opening balance at the
beginning of the year	1,777.8	–	293.5	289.1	250.2	248.3	492.4	369.4	2,813.9	906.8
Additions	56.2	1,878.7	8.8	2.4	–	3.1	199.3	113.1	264.3	1,997.3
Share of net proft/(loss)
after tax	182.6	(9.0)	14.7	18.2	29.2	13.7	25.6	35.4	252.1	58.3
Impairment	–	(3.3)	–	–	–	–	–	–	–	(3.3)
Distributions received/
receivable	(97.7)	(88.6)	(13.7)	(16.2)	(15.3)	(14.9)	(35.1)	(25.5)	(161.8)	(145.2)
Return of capital	(372.6)	–	–	–	–	–	–	–	(372.6)	–
Closing balance at the
end of the year	1,546.3	1,777.8	303.3	293.5	264.1	250.2	682.2	492.4	2,795.9	2,813.9

1 Refer to note 12(b)(iv). Represents the Group’s share of proceeds from the sale of four properties by DEXUS Office Trust Australia.

notes to the Financial Statements Property Portfolio Assets (continued)

NOTE 9. iNvESTMENTS ACCOUNTED FOR USiNg ThE EqUiTy METhOD (CONTINUED)

The table below provides summarised financial information for the Group’s share of joint ventures that are material, as well as other individually immaterial joint ventures.

	DEXuS	Ofce	Grosvenor Place	Grosvenor Place	Bent Street	Bent Street	Other	joint
	Trust Australia		Holding Trust		Trust		ventures		Total
Summarised Statement of	2015	2014	2015	2014	2015	2014	2015	2014	2015	2014
Comprehensive Income	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Property revenue	143.8	63.7	20.3	22.6	16.3	17.0	27.7	24.1	208.1	127.4
Property revaluations	91.2	3.0	(0.7)	–	16.3	–	3.8	16.8	110.6	19.8
Interest income	0.4	0.3	–	–	–	0.1	0.2	0.1	0.6	0.5
Finance costs	(8.0)	(5.4)	–	–	–	–	–	–	(8.0)	(5.4)
Other expenses	(44.8)	(70.6)	(4.9)	(4.4)	(3.4)	(3.4)	(6.1)	(5.6)	(59.2)	(84.0)
Net proft/(loss) for the year	182.6	(9.0)	14.7	18.2	29.2	13.7	25.6	35.4	252.1	58.3
Total comprehensive
income/(loss) for the year	182.6	(9.0)	14.7	18.2	29.2	13.7	25.6	35.4	252.1	58.3

NOTE 10. iNvENTORiES

Land and properties held for repositioning, development and sale are recorded at the lower of cost and net realisable value. Cost is assigned by specific identification and includes the cost of acquisition, and development and holding costs such as borrowing costs, rates and taxes. Holding costs incurred after completion of development are expensed.

Key estimate: net realisable value (NRV) of inventories

NRV is determined using the estimated selling price in the ordinary course of business less estimated costs to bring inventories to their finished condition, including marketing and selling expenses. NRV is based on the most reliable evidence available at the time and the amount the inventories are expected to be realised. These key assumptions are reviewed annually or more frequently if indicators of impairment exist. Key estimates have been reviewed and no impairment provisions have been recognised.

(a) Inventories – land and properties held for resale

(a) Inventories – land and properties held for resale
	2015	2014
	$m	$m
Current assets
Land and properties held for resale	110.3	80.3
Total current assets – inventories	110.3	80.3
Non-current assets
Land and properties held for resale	164.5	235.9
Total non-current assets – inventories	164.5	235.9
Total assets – inventories	274.8	316.2

2015 dexus annual rePOrT 71

(b) Reconciliation

(b) Reconciliation
		2015	2014
	note	$m	$m
Opening balance at the beginning of the year		316.2	252.9
Transfer from investment properties	8	32.0	101.4
Disposals		(172.2)	(65.3)
Acquisitions and additions		98.8	27.2
Closing balance at the end of the year		274.8	316.2

Acquisitions

§ On 16 January 2015, settlement occurred on the acquisition of Lakes Business Park, 2-13 Lord Street, Botany, for $153.5 million excluding acquisition costs. This comprises $109.8 million ($114.4 million including acquisition costs) classified as investment property and $43.7 million ($45.6 million including acquisition costs) classified as inventory. Refer note 8

Disposals

§ On 1 July 2014, 30 Distribution Drive, Laverton North, VIC was disposed of for gross proceeds of $19.0 million. 50% of this property was classified as non-current assets classified as held for sale at 30 June 2014 (carrying value of $8.5 million in inventory). Refer note 11
§ On 1 December 2014, 50 Carrington Street, Sydney, NSW was disposed of for gross proceeds of $88.0 million (carrying value of $75.8 million)
§ On 22 May 2015, 40 Market Street, Melbourne, VIC was disposed of for gross proceeds of $105.3 million (carrying value of $87.9 million)
§ On 13 August 2014, the Group exchanged contracts for the sale of 5-13 Rosebery Avenue and 25-55 Rothschild Avenue, Rosebery, NSW for $190.0 million, represented by a $19.0 million option fee and $171.0 million settlement payment. The Group will recognise the option fee over the term of the option and has therefore recognised $17.3 million during the year ended 30 June 2015. The balance of $1.7 million and the settlement amount of $171.0 million will be recognised in the year ended 30 June 2016

NOTE 11. NON-CURRENT ASSETS CLASSiFiED AS hELD FOR SALE

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use, and a sale is considered highly probable.

Non-current assets classified as held for sale are presented separately from the other assets in the balance sheet.

Non-current assets classified as held for sale relate to investment properties and are measured at fair value. As at 30 June 2015, the balance related to Units 10/11, 108 Silverwater Road, Silverwater, NSW. Refer note 24.

Disposals

§ On 1 July 2014, 30 Distribution Drive, Laverton North, VIC was disposed of for gross proceeds of $19.0 million. 50% of this property was classified as inventory at 30 June 2014. Refer to note 10
§ On 18 November 2014, Lumley Centre, 88 Shortland Street, Auckland, New Zealand, was disposed of for gross proceeds of NZ $146.0 million

notes to the Financial statements

Capital and Financial risk Management and Working Capital

iN ThiS SECTiON

The Group’s overall risk management program focuses on reducing volatility from impacts in movements of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Note 12 Capital and financial risk management outlines how the Group manages its exposure to a variety of financial risks (interest rate risk, foreign currency risk, liquidity risk and credit risk) and details the various derivative financial instruments entered into by the Group.

The Board determines the appropriate capital structure of the Group, how much is borrowed from financial institutions and capital markets (debt), and how much is raised from shareholders (equity) in order to finance the Group’s activities both now and in the future. This capital structure is detailed in the following notes:

§ Debt: Interest bearing liabilities in note 13 and Commitments and contingencies in note 14;

§ Equity: Contributed equity in note 15 and Reserves and retained profits in note 16. Note 17 provides a breakdown of the working capital balances held in the Statement of Financial Position.

NOTE 12. CAPiTAL AND FiNANCiAL RiSk MANAgEMENT

Capital and financial risk management is carried out through a centralised treasury function which is governed by a Board approved Treasury Policy. The Group has an established governance structure which consists of the Group Management Committee and Capital Markets Committee.

The Capital Markets Committee is a management committee that is accountable to the Board. It convenes at least quarterly and conducts a review of financial risk management exposures including liquidity, funding strategies and hedging. It is also responsible for the development of financial risk management policies and funding strategies for recommendation to the Board, and the approval of treasury transactions within delegated limits and powers.

(a) Capital risk management

The Group manages its capital to ensure that entities within the Group will be able to continue as a going concern while maximising the return to owners through the optimisation of the debt and equity balance.

The capital structure of the Group consists of debt, cash and cash equivalents and equity attributable to security holders. The Group continuously monitors its capital structure and it is managed in consideration of the following factors:

§ The cost of capital and the financial risks associated with each class of capital
§ Gearing levels and other debt covenants
§ Potential impacts on net tangible assets and security holders’ equity
§ Potential impacts on the Group’s credit rating, and
§ Other market factors

The Group has a stated target gearing level of 30% to 40%. The table below details the calculation of the gearing ratio in accordance with our primary financial covenant requirements:

	2015	2014
	$m	$m
Total interest bearing liabilities1	2,556.3	2,919.3
Total tangible assets2	9,402.1	9,342.2
Gearing ratio	27.2%	31.2%
Gearing ratio (look-through)3	28.5%	33.7%

1 Total interest bearing liabilities excludes deferred borrowing costs and includes the impact of foreign currency fluctuations of cross currency swaps.

2 Total tangible assets comprise total assets less intangible assets, derivatives and deferred tax balances.

3 The look-through gearing ratio is adjusted for cash and debt in equity accounted investments and is not a financial covenant.

The Group is rated A- by Standard & Poor’s (S&P) and A3 by Moody’s. The Group is required to comply with certain financial covenants in respect of its interest bearing liabilities. During the 2014 and 2015 reporting periods, the Group was in compliance with all of its financial covenants.

DXFM is the Responsible Entity for the managed investment schemes (DDF, DOT, DIT and DXO) that are stapled to form the Group. DXFM has been issued with an Australian Financial Services Licence (AFSL). The licence is subject to certain capital requirements including the requirement to maintain liquidity above specified limits. DXFM must also prepare rolling cash projections over at least the next 12 months and demonstrate it will have access to sufficient financial resources to meet its liabilities that are expected to be payable over that period. Cash projections and assumptions are approved, at least quarterly, by the Board of the Responsible Entity.

2015 dexus annual rePOrT 73

DWPL, a wholly owned entity, has been issued with an AFSL as it is the Responsible Entity for DEXUS Wholesale Property Fund (DWPF). DEXUS Wholesale Management Limited (DWML), a wholly owned entity, has been issued with an AFSL as it is the trustee of third party managed funds. These entities are subject to the capital requirements described above.

(b) Financial risk management

The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group’s principal financial instruments, other than derivatives, comprise cash, bank loans and capital markets issuance. The main purpose of financial instruments is to manage liquidity and hedge the Group’s exposure to financial risks namely:

§ Interest rate risk
§ Foreign currency risk
§ Liquidity risk, and
§ Credit risk

The Group uses derivatives to reduce the Group’s exposure to fluctuations in interest rates and foreign exchange rates. These derivatives create an obligation or a right that effectively transfers one or more of the risks associated with an underlying financial instrument, asset or obligation. Derivative financial instruments that the Group may use to hedge its risks include:

§ Interest rate swaps
§ Cross currency interest rate swaps
§ Foreign exchange contracts, and
§ Option contracts (interest rate)

The Group does not trade in derivative instruments for speculative purposes. The Group uses different methods to measure the different types of risks to which it is exposed, including monitoring the current and forecast levels of exposure and conducting sensitivity analysis.

(i) Market risk

INTEREST RATE RISK

Interest rate risk arises from interest bearing financial assets and liabilities that the Group utilises. Non-derivative interest bearing financial instruments are predominantly short term liquid assets and long term debt issued at fixed rates which expose the Group to fair value interest rate risk as the Group may pay higher interest costs than if it were at variable rates. The Group’s borrowings which have a variable interest rate give rise to cash flow interest rate risk as variable interest rates may increase.

The Group’s risk management policy for interest rate risk seeks to minimise the effects of interest rate movements on its asset and liability portfolio through active management of the exposures. The policy prescribes minimum and maximum hedging amounts for the Group, which is managed on a portfolio basis.

The Group maintains a mix of offshore and local currency fixed rate and variable rate debt, as well as a mix of long term and short term debt. The Group primarily enters into interest rate swaps and cross currency interest rate swap agreements to manage the associated interest rate risk. The Group hedges the interest rate and currency risk on the majority of its foreign currency borrowings by entering into cross currency swaps, which have the economic effect of converting foreign currency borrowings to local currency borrowings at contracted rates. The derivative contracts are recorded at fair value in the Statement of Financial Position, being the market value as quoted in an active market.

As at 30 June 2015, 95% (2014: 62%) of the interest bearing liabilities of the Group were hedged. The average hedged percentage for the financial year was 76% (2014: 60%).

Interest rate swaps require settlement of net interest receivable or payable each 90 or 180 days. The settlement dates coincide with the dates on which the interest is payable on the underlying debt. The receivable and payable legs on interest rate swap contracts are settled on a net basis. The net notional amount of average fixed rate debt and interest rate swaps in place in each year and the weighted average effective hedge rate is set out below:

	June 2016	June 2017	June 2018	June 2019	June 2020	> June 2021
	$m	$m	$m	$m	$m	$m
Fixed rate debt1
A$ fxed rate debt	515.0	462.5	275.8	84.2	45.8	–
Interest rate swaps
A$ hedged1	1,700.4	1,687.5	1,569.6	1,298.3	600.8	12.1
Combined fxed debt and
swaps (A$ equivalent)	2,215.4	2,150.0	1,845.4	1,382.5	646.7	12.1
Hedge rate (%)	3.86%	3.79%	3.97%	4.21%	3.96%	2.69%

1 Amounts do not include fixed rate debt that has been swapped to floating rate debt through cross currency swaps.

notes to the Financial Statements

Capital and Financial Risk Management and Working Capital (continued)

NOTE 12. CAPiTAL AND FiNANCiAL RiSk MANAgEMENT (CONTINUED)

(b) Financial risk management (continued)

(i) Market risk (continued)

INTEREST RATE RISK (CONTINUED)

Sensitivity analysis on interest expense

The table below shows the impact on the Group’s net interest expense of a 50 basis point increase or decrease in market interest rates. The sensitivity on cash flow arises due to the impact that a change in interest rates will have on the Group’s floating rate debt and derivative cash flows on average during the financial year. Net interest expense is only sensitive to movements in market rates to the extent that floating rate debt is not hedged.

		2015	2014
		(+/-) $m	(+/-) $m
+/- 0.50% (50 basis points)	A$	3.6	5.0
+/- 0.50% (50 basis points)	NZ$	–	0.6
Total A$ equivalent		3.6	5.6

The increase or decrease in interest expense is proportional to the increase or decrease in interest rates.

Sensitivity analysis on fair value of interest rate swaps

The sensitivity analysis on interest rate swaps below shows the effect on net profit or loss for changes in the fair value of interest rate swaps for a 50 basis point increase or decrease in short-term and long-term market interest rates. The sensitivity on fair value arises from the impact that changes in market rates will have on the valuation of the interest rate swaps.

The fair value of interest rate swaps is calculated as the present value of estimated future cash flows on the instruments. Although interest rate swaps are transacted for the purpose of providing the Group with an economic hedge, the Group has elected not to apply hedge accounting to these instruments. Accordingly, gains or losses arising from changes in the fair value are reflected in the profit or loss.

		2015	2014
		(+/-) $m	(+/-) $m
+/- 0.50% (50 basis points)	A$	33.3	38.0
+/- 0.50% (50 basis points)	US$	(0.3)	(0.7)
Total A$ equivalent		33.0	37.3

Sensitivity analysis on fair value of cross currency swaps

The sensitivity analysis on cross currency interest rates swaps below shows the effect on net profit or loss for changes in the fair value for a 50 basis points increase and decrease in market rates. The sensitivity on fair value arises from the impact that changes in short-term and long-term market rates will have on the valuation of the cross currency swaps.

		2015	2014
		(+/-) $m	(+/-) $m
+/- 0.50% (50 basis points)	US$ (A$ equivalent)	9.7	8.9
Total A$ equivalent		9.7	8.9

FOREIGN CuRRENCY RISK

Foreign currency risk refers to the risk that the value or the cash flows arising from a financial commitment, or recognised asset or liability will fluctuate due to changes in foreign currency rates. The Group’s foreign currency exchange risk arises primarily from:

§ Highly probable forecast transactions denominated in foreign currency, and

§ Borrowings denominated in foreign currency

The objective of the Group’s foreign exchange risk management policy is to ensure that movements in exchange rates have minimal adverse impact on the Group’s foreign currency assets and liabilities. Refer to note 13 for the USD foreign currency exposures and management thereof via cross currency interest rate swaps.

Foreign currency assets and liabilities

Where foreign currency borrowings are used to fund Australian investments, the Group transacts cross currency swaps to reduce the risk that movements in foreign exchange rates will have an impact on security holders’ equity and net tangible assets.

2015 dexus annual rePOrT 75

(ii) Liquidity risk

Liquidity risk is associated with ensuring that there are sufficient funds available to meet the Group’s financial commitments as and when they fall due and planning for any unforeseen events which may curtail cash flows. The Group identifies and manages liquidity risk across the following categories:

§ Short-term liquidity management covering the month ahead on a rolling basis with continuous monitoring of forecast and actual cash flows
§ Medium-term liquidity management of liquid assets, working capital and standby facilities to cover Group cash requirements over the next 1-24 month period. The Group maintains a level of committed borrowing facilities above the forecast committed debt requirements (liquidity headroom buffer). Committed debt includes future expenditure that has been approved by the Board or Investment Committee (as required within delegated limits) and
§ Long-term liquidity management through ensuring an adequate spread of maturities of borrowing facilities so that refinancing risk is not concentrated in certain time periods, and ensuring an adequate diversification of funding sources where possible, subject to market conditions

REFINANCING RISK

Refinancing risk is the risk that the Group:

§ Will be unable to refinance its debt facilities as they mature, and/or
§ Will only be able to refinance its debt facilities at unfavourable interest rates and credit market conditions (margin price risk)

The Group’s key risk management strategy for margin price risk on refinancing is to spread the maturities of debt facilities over different time periods to reduce the volume of facilities to be refinanced and the exposure to market conditions in any one period. An analysis of the contractual maturities of the Group’s interest bearing liabilities and derivative financial instruments is shown in the table below. The amounts in the table represent undiscounted cash flows.

	2015 2014
	Within one year $m Between one and two years $m Between two and fve years $m After fve years $m Total $m Within one year $m Between one and two years $m Between two and fve years $m After fve years $m Total $m
Cash	13.0 – – – 13.0 14.1 – – – 14.1
Receivables	55.5 – – – 55.5 111.6 – – – 111.6
Payables	(110.7) – – – (110.7) (111.1) – – – (111.1)
	(42.2) – – – (42.2) 14.6 – – – 14.6
Interest bearing liabilities & interest
Fixed interest rate liabilities	(95.1) (355.4) (500.2) (1,550.7) (2,501.4) (168.3) (71.2) (667.1) (970.7) (1,877.3)
Floating interest rate liabilities	(163.0) (203.1) (579.7) – (945.8) (114.7) (156.6) (1,370.5) (117.0) (1,758.8)
Total interest bearing liabilities & interest1	(258.1) (558.5) (1,079.9) (1,550.7) (3,447.2) (283.0) (227.8) (2,037.6) (1,087.7) (3,636.1)
Derivative fnancial instruments
Derivative assets	82.5 117.3 142.9 1,466.9 1,809.6 131.3 31.3 119.8 772.5 1,054.9
Derivative liabilities	(66.8) (88.0) (103.7) (1,043.3) (1,301.8) (139.6) (51.2) (167.9) (661.9) (1,020.6)
Total net derivative fnancial instruments2	15.7 29.3 39.2 423.6 507.8 (8.3) (19.9) (48.1) 110.6 34.3

1 Refer to note 13. Excludes deferred borrowing costs but includes estimated fees and interest.
2 The notional maturities on derivatives are shown for cross currency interest rate swaps (refer to interest rate risk) as they are the only instruments where a principal amount is exchanged. For interest rate swaps, only the net interest cash flows (not the notional principal) are included. Refer to note 12(c) for fair value of derivatives. Refer to note 14(b) for financial guarantees.

notes to the Financial Statements

Capital and Financial Risk Management and Working Capital (continued)

NOTE 12. CAPiTAL AND FiNANCiAL RiSk MANAgEMENT (CONTINUED)

(b) Financial risk management (continued)

(iii) Credit risk

Credit risk is the risk that the counterparty will not fulfil its obligations under the terms of a financial instrument and will cause financial loss to the Group. The Group has exposure to credit risk on all financial assets included in the Group’s Statement of Financial Position.

The Group manages this risk by:

§ Adopting a process for determining an approved counterparty, with consideration of qualitative factors as well as the counterparty’s credit rating
§ Regularly monitoring counterparty exposure within approved credit limits that are based on the lower of a S&P, Moody’s and Fitch credit rating. The exposure includes the current market value of in-the-money contracts and the potential exposure, which is measured with reference to credit conversion factors as per APRA guidelines
§ Entering into ISDA Master Agreements once a financial institution counterparty is approved
§ Monitoring tenants exposure within approved credit limits
§ For some trade receivables, obtaining collateral where necessary in the form of bank guarantees and tenant bonds, and
§ Regularly monitoring loans and receivables on an ongoing basis

A minimum S&P rating of A– (or Moody’s or Fitch equivalent) is required to become or remain an approved counterparty unless otherwise approved by the DEXUS Board.

The Group is exposed to credit risk on cash balances and on derivative financial instruments with financial institutions. The Group has a policy that sets limits as to the amount of credit exposure to each financial institution. New derivatives and cash transactions are limited to financial institutions that meet minimum credit rating criteria in accordance with the Group’s policy requirements.

Financial instrument transactions are spread among a number of approved financial institutions within specified credit limits to minimise the Group’s exposure to any counterparty. As a result, there is no significant concentration of credit risk for financial instruments. The maximum exposure to credit risk at 30 June 2015 is the carrying amounts of financial assets recognised on the Statement of Financial Position.

As at 30 June 2015, there were no significant concentrations of credit risk for trade receivables. Trade receivable balances and the credit quality of trade debtors are monitored on an ongoing basis. The tables below show the ageing analysis of loans and receivables net of provisions of the Group.

	2015	2014
	$m	$m
0-30 days	47.6	106.4
31-60 days	3.5	3.1
61-90 days	0.3	0.6
Over 91 days	4.1	1.5
Total loans and receivables net of provisions	55.5	111.6

Amounts over 31 days are past due; however, no receivables are impaired. The credit quality of financial assets that are neither past due nor impaired is monitored to make sure there are no adverse changes in credit quality.

(iv) Fair value

The Group has classified its financial assets and liabilities as follows:

Financial asset/liability	Classifcation	Valuation basis	Reference
Receivables1	Loans and receivables	Amortised cost	Refer to note 17(b)
Payables1	Financial liability at amortised cost	Amortised cost	Refer to note 17(d)
Interest bearing liabilities	Financial liability at amortised cost	Amortised cost	Refer to note 13
Non-interest bearing loans from related party	Loans and receivables	Amortised cost	Refer to note 22
Derivatives	Fair value through proft or loss	Fair value	Refer to note 12(c)

1 The face value of these is approximately equal to their fair value; these amounts are unsecured and are usually paid within 30 days of recognition.

2015 dexus annual rePOrT 77

Financial assets and liabilities are classified in accordance with the purpose for which they were acquired. As noted in section (c) below, derivative financial instruments are initially recognised in the Statement of Financial Position at fair value on the date on which the derivative contract is entered into and subsequently remeasured to fair value.

The valuation techniques applied by the Group are consistent with those applied in prior year financial reports. The valuation technique used to measure the various financial instruments, namely foreign currency contracts and interest rate contracts is based on market observable spot exchange rates and interest rate yield curves. This method records any change in fair value of a derivative, in the Financial Statements.

The carrying amounts and estimated fair value of all the Group’s financial assets and liabilities recognised in the Financial Statements are as follows:

	2015		2014
	Carrying	2015	Carrying	2014
	amount1	Fair value2	amount1	Fair value2
	$m	$m	$m	$m
Financial assets
Cash and cash equivalents	13.0	13.0	14.1	14.1
Loans and receivables (current)	55.5	55.5	111.6	111.6
Derivative assets	384.9	384.9	80.2	80.2
Total fnancial assets	453.4	453.4	205.9	205.9
Financial liabilities
Trade payables	110.7	110.7	111.1	111.1
Non-interest bearing loan from related party3	–	–	338.4	338.4
Derivative liabilities	170.0	170.0	88.1	88.1
Interest bearing liabilities
Fixed interest bearing liabilities	1,877.1	1,984.7	1,402.4	1,491.0
Floating interest bearing liabilities	911.0	911.0	1,555.7	1,550.7
Total fnancial liabilities	3,068.8	3,176.4	3,495.7	3,579.3

1 Carrying value is equal to the value of the financial instruments on the Statement of Financial Position.
2 Fair value is the price that would be received to transfer the asset or liability in an orderly transaction between market participants at the measurement date. Where there is a difference between the carrying amount and fair value, the difference is not recognised in the Statement of Financial Position.

3 Relates to the loan from DEXUS Office Trust Australia.

Key assumptions: fair value of borrowings

The fair value of interest bearing liabilities has been determined based on a discounted cash flow analysis using observable market inputs (interest rates, exchange rates and currency basis) and applying a credit or debit value adjustment based on the current credit worthiness of counterparties and the Group.

The Group uses the following methods in the determination and disclosure of the fair value of financial instruments:

Level 1: the fair value is calculated using quoted prices in active markets.

Level 2: the fair value is determined using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable data.

All financial instruments were measured at Level 2 for the periods presented in this report. During the year, there were no transfers between Level 1, 2 and 3 fair value measurements.

notes to the Financial Statements

Capital and Financial Risk Management and Working Capital (continued)

NOTE 12. CAPiTAL AND FiNANCiAL RiSk MANAgEMENT (CONTINUED)

(b) Financial risk management (continued)

(v) Offsetting financial assets and financial liabilities

Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position where there is a legally enforceable right to set-off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. The Group has also entered into arrangements that do not meet the criteria for offsetting except in certain circumstances, such as bankruptcy or the termination of the underlying contract.

The following table presents the gross amounts of recognised financial instruments in the Statement of Financial Position as the Group does not apply the right of set-off that exists in master netting arrangements. The column ‘net amount’ shows the impact on the Group’s Statement of Financial Position if all legal rights of set-off available under the applicable master netting arrangements were exercised at 30 June 2015 and 30 June 2014.

		Gross amounts	net amounts
		ofset in the	presented in	Amounts
		Statement	the Statement	subject to	Financial
	Gross	of Financial	of Financial	master netting	instrument
	amounts	Position	Position	arrangements	collateral	net amount
2015	$m	$m	$m	$m	$m	$m
Financial assets
Derivative fnancial instruments	384.9	–	384.9	(46.0)	–	338.9
Total	384.9	–	384.9	(46.0)	–	338.9
Financial liabilities
Derivative fnancial instruments	170.0	–	170.0	(46.0)	–	124.0
Total	170.0	–	170.0	(46.0)	–	124.0

2014
Financial assets
Derivative fnancial instruments	80.2	–	80.2	(6.5)	–	73.7
Total	80.2	–	80.2	(6.5)	–	73.7
Financial liabilities
Derivative fnancial instruments	88.1	–	88.1	(6.5)	–	81.6
Total	88.1	–	88.1	(6.5)	–	81.6

Master netting arrangements – not currently enforceable

Agreements with derivative counterparties are based on an ISDA Master Agreement. Under the terms of these arrangements, where certain credit events occur (such as default), the net position owing/receivable to a single counterparty in the same currency will be taken as owing and all the relevant arrangements terminated. As the Group does not presently have a legally enforceable right of set-off, these amounts have not been offset in the Statement of Financial Position, but have been presented separately in the table above.

(c) Derivative financial instruments

A derivative is a type of financial instrument typically used to manage risk. A derivative’s value changes over time in response to underlying variables including interest rates or exchange rates and is entered into for a fixed period. A hedge is where a derivative is used to manage an underlying exposure and the Group uses derivatives to manage its exposure to interest rates and foreign exchange risk accordingly.

Written policies and limits are approved by the Board of Directors of the Responsible Entity, in relation to the use of financial instruments to manage financial risks. The Responsible Entity continually reviews the Group’s exposures and updates its treasury policies and procedures. The Group does not trade in derivative instruments for speculative purposes.

Derivatives including interest rate swaps, the interest rate component of cross currency swaps, and foreign exchange contracts, are measured at fair value with any changes in fair value recognised in the Statement of Comprehensive Income.

At inception the Group can elect to formally designate and document the relationship between certain hedge derivative instruments (cross currency interest rate swaps only) and the associated hedged items (foreign currency bonds only). The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

2015 dexus annual rePOrT 79

Fair value hedge

A fair value hedge is a hedge of the exposure to changes in fair value of an asset or liability that is attributable to a particular risk and could affect the Statement of Comprehensive Income. Changes in the fair value of derivatives (hedging instruments) that are designated as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (hedged item).

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective interest rate.

Cash flow hedge

A cash flow hedge is a hedge of the exposure to variability in cash flows attributable to a particular risk to a highly probable forecast transaction pertaining to an asset or liability. The effective portion of changes in the fair value of derivatives that are designated as cash flow hedges is recognised in other comprehensive income in equity via the cash flow hedge reserve. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. Any gain or loss related to ineffectiveness is recognised in profit or loss immediately.

Hedge accounting is discontinued when the hedging instrument expires, is terminated, is no longer in an effective hedge relationship, is de-designated, or the forecast transaction is no longer expected to occur. The fair value gain or loss of derivatives recorded in equity is recognised in profit or loss over the period that the forecast transaction is recorded in profit or loss. If the forecast transaction is no longer expected to occur, the cumulative gain or loss in equity is recognised in profit or loss immediately.

	2015	2014
	$m	$m
Current assets
Interest rate swap contracts	2.6	2.3
Cross currency swap contracts	15.1	6.4
Total current assets – derivative fnancial instruments	17.7	8.7
Non-current assets
Interest rate swap contracts	17.5	22.5
Cross currency swap contracts	349.7	45.1
Other	–	3.9
Total non-current assets – derivative fnancial instruments	367.2	71.5
Current liabilities
Interest rate swap contracts	8.3	2.4
Cross currency swap contracts	2.5	–
Total current liabilities – derivative fnancial instruments	10.8	2.4
Non-current liabilities
Interest rate swap contracts	108.1	79.3
Cross currency swap contracts	51.1	6.4
Total non-current liabilities – derivative fnancial instruments	159.2	85.7
Net derivative fnancial instruments	214.9	(7.9)

Key assumptions: fair value of derivatives

The fair value of derivative financial instruments has been determined based on a discounted cash flow analysis using observable market inputs (interest rates, exchange rates and currency basis) and applying a credit or debit valuation adjustment based on the current credit worthiness of counterparties and the Group.

Refer to note 12(b)(iv) Capital and Financial Risk Management for further detail.

notes to the Financial Statements

Capital and Financial Risk Management and Working Capital (continued)

NOTE 13. iNTEREST bEARiNg LiAbiLiTiES

Borrowings are initially recognised at fair value net of transaction costs and subsequently measured at amortised cost using the effective interest rate method. Under the effective interest rate method, any transaction fees, costs, discounts and premiums directly related to the borrowings are capitalised to borrowings and amortised in profit or loss over the expected life of the borrowings.

If there is an effective fair value hedge of borrowings, a fair value adjustment will be applied based on the mark to market movement in the benchmark component of the borrowings. This movement is recognised in the profit or loss. Refer note 12(b)(iv) Capital and financial risk management for further detail.

All borrowings with contractual maturities greater than 12 months after reporting date are classified as non-current liabilities.

		2015	2014
	note	$m	$m
Current
Unsecured
US senior notes	(b)	–	94.5
Bank loans	(c)	150.0	–
Medium term notes	(e)	–	55.0
Total unsecured		150.0	149.5
Total current liabilities – interest bearing liabilities		150.0	149.5
Non-current
Unsecured
US senior notes	(a), (b )	1,359.4	827.8
Bank loans	(c)	761.0	1,450.7
Commercial paper	(d)	100.0	100.0
Medium term notes	(e)	417.7	418.9
Total unsecured		2,638.1	2,797.4
Deferred borrowing costs		(14.1)	(15.3)
Total non-current liabilities – interest bearing liabilities		2,624.0	2,782.1
Total interest bearing liabilities		2,774.0	2,931.6

Financing arrangements

The following table summarises the maturity profile of the Group’s financing arrangements:

					2015	2015
					$m	$m
Type of facility	notes	Currency	Security	Maturity Date	utilised1	Facility limit
US senior notes (144A)	(a)	US$	Unsecured	Mar-21	324.8	324.8
US Senior notes (USPP)	(b)	US$	Unsecured	Dec-16 to Jul-28	1,029.9	1,029.9
Medium term notes	(e)	A$	Unsecured	Apr-17 to Sept-18	417.7	417.7
Commercial paper	(d)	A$	Unsecured	Aug-16	100.0	100.0
Multi-option revolving credit facilities	(c)	Multi currency	Unsecured	Mar-16 to Jun-20	911.0	1,700.0
Total					2,783.4	3,572.4
Bank guarantee in place					30.9
Unused at balance date					758.1

1 Includes drawn amounts and excludes fair value adjustments recorded in interest bearing liabilities in relation to effective fair value hedges.

Each of the Group’s unsecured borrowing facilities are supported by guarantee arrangements, and have negative pledge provisions which limit the amount and type of encumbrances that the Group can have over their assets and ensures that all senior unsecured debt ranks pari passu.

(a) US senior notes (144A)

This includes a total of US$250.0 million (A$324.8 million) of US senior notes with a maturity of March 2021. The USD exposure is economically hedged using cross currency interest rate swaps with a notional value of US$250.0 million.

2015 dexus annual rePOrT 81

(b) US senior notes (USPP)

This includes a total of US$791.0 million (A$1,029.9 million) of US senior notes with a weighted average maturity of December 2025. The majority of the USD balance is designated as an accounting hedge using cross currency interest rate swaps with a notional value of US$750 million. The remaining US$41 million is economically hedged using cross currency interest rate swaps with the same notional value.

(c) Multi-option revolving credit facilities

This includes 18 facilities maturing between March 2016 and June 2020 with a weighted average maturity of February 2018. A$30.9 million is utilised as bank guarantees for developments and AFSL requirements.

(d) Commercial Paper

This includes a total of A$100.0 million of Commercial Paper which is supported by a standby facility of A$100.0 million with a weighted average maturity of August 2016. The standby facility has same day availability.

(e) Medium Term Notes

This includes a total of A$415.0 million of Medium Term Notes with a weighted average maturity of December 2017.

Additional information

The Group also has commitments totaling A$100.0 million that are available for three months out of every six months.

NOTE 14. COMMiTMENTS AND CONTiNgENCiES

(a) Commitments

(i) Capital commitments

The following amounts represent remaining capital expenditure on investment properties and inventories contracted at the end of each reporting period but not recognised as liabilities payable:

	2015	2014
	$m	$m
Investment properties	59.2	58.2
Inventories	17.8	0.8
Investments accounted for using the equity method	183.9	284.8
Total capital commitments	260.9	343.8

(ii) Lease payable commitments

The future minimum lease payments payable by the Group are:

	2015	2014
	$m	$m
Within one year	4.0	3.6
Later than one year but not later than fve years	11.6	12.7
Later than fve years	5.9	6.5
Total lease payable commitments	21.5	22.8

Payments made under operating leases are expensed on a straight-line basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased property.

No provisions have been recognised in respect of non-cancellable operating leases.

(iii) Lease receivable commitments

The future minimum lease payments receivable by the Group are:

	2015	2014
	$m	$m
Within one year	387.5	383.4
Later than one year but not later than fve years	996.0	992.9
Later than fve years	391.9	353.4
Total lease receivable commitments	1,775.4	1,729.7

notes to the Financial Statements Capital and Financial Risk Management and Working Capital (continued)

NOTE 14. COMMiTMENTS AND CONTiNgENCiES (CONTINUED)

(b) Contingencies

DDF, together with DIT, DOT and DXO, is a guarantor of A$3,572.4 million of interest bearing liabilities (refer note 13). The guarantees have been given in support of debt outstanding and drawn against these facilities, and may be called upon in the event that a borrowing entity has not complied with certain requirements such as failure to pay interest or repay a borrowing, whichever is earlier. During the period no guarantees were called.

The Group has bank guarantees of $30.9 million, comprising $30.2 million held to comply with the terms of the Australian Financial Services Licenses (AFSL) and $0.7 million in respect of developments.

The above guarantees are issued in respect of the Group and do not constitute an additional liability to those already existing in interest bearing liabilities on the Statement of Financial Position.

The Directors of the Responsible Entity are not aware of any other contingent liabilities in relation to the Group, other than those disclosed in the Financial Statements, which should be brought to the attention of security holders as at the date of completion of this report.

NOTE 15. CONTRibUTED EqUiTy

(a) Contributed equity of unitholders of the parent entity

(a) Contributed equity of unitholders of the parent entity
	2015	2014
	$m	$m
Opening balance at the beginning of the year	1,833.4	1,577.7
Issue of additional equity, net of transaction costs	157.2	281.2
Buy-back of contributed equity, net of transaction costs	–	(25.5)
Closing balance at the end of the year	1,990.6	1,833.4

(b) Contributed equity of unitholders of other stapled entities

(b) Contributed equity of unitholders of other stapled entities
	2015	2014
	$m	$m
Opening balance at the beginning of the year	3,625.7	3,106.3
Issue of additional equity, net of transaction costs	314.2	569.2
Buy-back of contributed equity, net of transaction costs	–	(49.8)
Closing balance at the end of the year	3,939.9	3,625.7

(c) Number of securities on issue

	2015	2014
	no. of	no. of
	securities	securities
Opening balance at the beginning of the year	5,433,110,810	4,701,957,390
Issue of additional equity	65,274,552	804,882,384
One-for-six security consolidation	(4,527,579,013)	–
Buy-back of contributed equity	–	(73,728,964)
Closing balance at the end of the year	970,806,349	5,433,110,810

Each stapled security ranks equally with all other stapled securities for the purposes of distributions and on termination of the Group.

Each stapled security entitles the holder to vote in accordance with the provisions of the Constitutions and the Corporations Act 2001.

Transaction costs arising on the issue of equity instruments are recognised directly in equity (net of tax) as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.

On 29 October 2014, the Group announced a one-for-six consolidation of DEXUS Property Group stapled securities. The consolidation was completed on 14 November 2014. Where the number of securities held by a security holder following the consolidation resulted in a fraction of a security, the fraction was rounded up to the nearest whole number.

2015 dexus annual rePOrT 83

NOTE 16. RESERvES AND RETAiNED PROFiTS

(a) Reserves

	2015	2014
	$m	$m
Foreign currency translation reserve	–	(1.8)
Asset revaluation reserve	42.7	42.7
Cash fow hedge reserve	8.6	(9.3)
Security-based payments reserve	8.1	5.6
Treasury securities reserve	(8.0)	(5.3)
Total reserves	51.4	31.9
Foreign currency translation reserve
Opening balance at the beginning of the year	(1.8)	(6.3)
Exchange differences on translating foreign operations	(0.3)	5.3
Foreign currency translation reserve transfer on disposal of foreign operations	2.1	(0.8)
Closing balance at the end of the year	–	(1.8)
Asset revaluation reserve
Opening balance at the beginning of the year	42.7	42.7
Closing balance at the end of the year	42.7	42.7
Cash fow hedge reserve
Opening balance at the beginning of the year	(9.3)	–
Changes in the fair value of cash fow hedges	17.9	(9.3)
Closing balance at the end of the year	8.6	(9.3)
Security-based payments reserve
Opening balance at the beginning of the year	5.6	2.4
Issue of securities to employees	(1.3)	–
Security-based payments expense	3.8	3.2
Closing balance at the end of the year	8.1	5.6
Treasury securities reserve
Opening balance at the beginning of the year	(5.3)	(2.2)
Issue of securities to employees	1.3	–
Purchase of securities	(4.0)	(3.1)
Closing balance at the end of the year	(8.0)	(5.3)

(b) Nature and purpose of reserves

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the Financial Statements of foreign operations.

Asset revaluation reserve

The asset revaluation reserve is used to record the fair value adjustment arising on a business combination.

Cash flow hedge reserve

The cash flow hedge reserve is used to record the effective portion of changes in the fair value of derivatives that are designated as cash flow hedges.

notes to the Financial Statements Capital and Financial Risk Management and Working Capital (continued)

NOTE 16. RESERvES AND RETAiNED PROFiTS (CONTINUED)

(b) Nature and purpose of reserves (continued)

Security-based payments reserve

The security-based payments reserve is used to recognise the fair value of performance rights to be issued under the 2012 Transitional Performance Rights Plan, the Deferred Short Term Incentive Plans (DSTI) and the Long Term Incentive Plans (LTI). Refer to note 21 for further details.

Treasury securities reserve

The treasury securities reserve is used to record the acquisition of securities purchased to fulfil the obligations of the 2012 Transitional Performance Rights Plan, the Deferred Short Term Incentive Plans (DSTI) and the Long Term Incentive Plans (LTI). As at 30 June 2015, DXS held 1,170,525 stapled securities (2014: 847,825, restated to reflect the one-for-six security consolidation).

(c) Retained profits

(c) Retained profts
	2015	2014
	$m	$m
Opening balance at the beginning of the year	562.3	471.1
Net proft/(loss) attributable to security holders	618.7	406.6
Distributions provided for or paid	(385.6)	(315.4)
Closing balance at the end of the year	795.4	562.3

NOTE 17. wORkiNg CAPiTAL

(a) Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(b) Receivables

Rental, management fees and interest revenue are brought to account on an accruals basis. Dividends and distributions are recognised when declared and, if not received at the end of the reporting period, reflected in the Statement of Financial Position as a receivable.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for doubtful debts. Trade receivables are required to be settled within 30 days and are assessed on an ongoing basis for impairment. Receivables which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for doubtful debts is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.

	2015	2014
	$m	$m
Rent receivable	13.9	13.5
Less: provision for doubtful debts	(0.2)	(0.1)
Total rental receivables	13.7	13.4
Distributions receivable	12.9	68.8
Fee receivable	18.9	13.9
Other receivables	10.0	15.5
Total other receivables	41.8	98.2
Total receivables	55.5	111.6

(c) Other current assets

(c) Other current assets
	2015	2014
	$m	$m
Prepayments	12.5	8.1
Deposit for the acquisition of investment property	14.8	–
Total other current assets	27.3	8.1

2015 dexus annual rePOrT 85

(d) Payables

Expenses are brought to account on an accruals basis and, if not paid at the end of the reporting period, are reflected in the Statement of Financial Position as a payable.

These amounts represent liabilities for amounts owing at the end of the reporting period. The amounts are unsecured and are usually paid within 30 days of recognition.

	2015	2014
	$m	$m
Trade creditors	36.7	37.2
Accruals	15.7	15.0
Accrued capital expenditure	15.6	10.7
Prepaid income	10.8	17.9
Accrued interest	28.5	25.6
Other payables	3.4	4.7
Total payables	110.7	111.1

(e) Provisions

A provision is recognised when an obligation exists as a result of a past event and it is probable that a future outflow of cash or other benefit will be required to settle the obligation.

In accordance with the Trust’s Constitution, the Group distributes its distributable income to unitholders by cash or reinvestment. Distributions are provided for when they are approved by the Board of Directors and declared.

Provision for employee benefits relates to the liabilities for wages, salaries, annual leave and long service leave.

Liabilities for employee benefits for wages, salaries and annual leave expected to be settled within 12 months represent present obligations resulting from employees’ services provided to the end of the reporting period. They are measured based on remuneration wage and salary rates that the Group expects to pay at the end of the reporting period including related on-costs, such as workers compensation, insurance and payroll tax.

The provision for employee benefits for long service leave represents the present value of the estimated future cash outflows, to be made resulting from employees’ services provided to the end of the reporting period.

The provision is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates based on turnover history and is discounted using the Australian Corporate Bond Index rates at the end of the reporting period that most closely matches the term of the maturity of the related liabilities. The provision for employee benefits also includes the employee incentives schemes which are shown separately in note 21.

	2015	2014
	$m	$m
Provision for distribution	207.4	173.3
Provision for employee benefts	23.7	23.9
Total current provisions	231.1	197.2

Movements in each class of provision during the financial year, other than employee benefits, are set out below:

	2015	2014
	$m	$m
Provision for distribution
Opening balance at the beginning of the year	173.3	146.2
Additional provisions	385.6	315.4
Payment of distributions	(351.5)	(288.3)
Closing balance at the end of the year	207.4	173.3

A provision for distribution has been raised for the period ended 30 June 2015. This distribution is to be paid on 31 August 2015.

notes to the Financial statements

Other disclosures

iN ThiS SECTiON

This section includes other information that must be disclosed to comply with the Accounting Standards, the Corporations Act 2001 or the Corporations Regulations, but which are not considered critical in understanding the financial performance or position of the Group.

NOTE 18. iNTANgibLE ASSETS

Management rights represent the asset management rights owned by DEXUS Holdings Pty Limited, a wholly owned subsidiary of DXO, which entitle it to management fee revenue from both finite life trusts and indefinite life trusts. Those rights that are deemed to have a finite useful life (held at a value of $4.8 million (2014: $5.1 million)) are measured at cost and amortised using the straight-line method over their estimated remaining useful lives of 17 years. Management rights that are deemed to have an indefinite life are held at a value of $286.0 million (2014: $286.0 million).

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition.

Goodwill and management rights with an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. An impairment loss is recognised in the Statement of Comprehensive Income for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows, which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units).

	2015	2014
	$m	$m
Management rights
Opening balance at the beginning of the year	291.1	242.1
Acquisition of management rights	–	42.0
Amortisation charge	(0.3)	(0.3)
Reversal of previous impairment of management rights	–	7.3
Closing balance at the end of the year	290.8	291.1
Cost	294.4	294.4
Accumulated amortisation	(3.6)	(3.3)
Total management rights	290.8	291.1
Goodwill
Opening balance at the beginning of the year	1.5	1.6
Impairment	(0.1)	(0.1)
Closing balance at the end of the year	1.4	1.5
Cost	3.0	3.0
Accumulated impairment	(1.6)	(1.5)
Total goodwill	1.4	1.5
Total intangible assets	292.2	292.6

2015 dexus annual rePOrT 87

During the current year, management carried out a review of the recoverable amount of its management rights. There was no change in the carrying value of the management rights in the current year. In the prior year, there was a recognition of a reversal of previous impairments of $7.3 million in the Statement of Comprehensive Income.

The value in use has been determined using Board approved long-term forecasts in a five year discounted cash flow model. Forecasts were based on projected returns of the business in light of current market conditions. The performance in year five has been used as a terminal value.

Key assumptions: value in use of management rights

Judgement is required in determining the following key assumptions used to calculate the value in use:

§ Terminal capitalisation rate range between 10.0% – 16.7% (2014: 12.5% – 16.7%) was used incorporating an appropriate risk premium for a management business
§ Cash flows have been discounted at 9.0% (2014: 9.5%) based on externally published weighted average cost of capital for an appropriate peer group plus an appropriate premium for risk. A 1.0% (2014: 1.0%) decrease in the discount rate would increase the valuation by $17.1 million (2014: $18.7 million)

NOTE 19. AUDiT, TAXATiON AND TRANSACTiON SERviCES FEES

During the year, the Auditor and its related practices earned the following remuneration:

	2015	2014
	$’000	$’000
Audit fees
PwC Australia – audit and review of Financial Statements	1,370	1,150
PwC fees paid in relation to outgoings audits	111	145
PwC Australia – regulatory audit and compliance services	216	211
PwC Australia – audit of DOTA	95	213
PwC Australia – sustainability assurance	97	75
Audit fees paid to PwC	1,889	1,794
Taxation fees
Fees paid to PwC Australia and New Zealand	147	33
Fees paid to PwC Australia in respect of the CPA acquisition	–	200
Taxation fees paid to PwC	147	233
Total audit and taxation fees paid to PwC	2,036	2,027
Transaction services fees
Fees paid to PwC Australia in respect of the CPA acquisition	–	225
Fees paid to PwC Australia – other	67	–
Total transaction services fees paid to PwC	67	225
Total audit, taxation and transaction services fees paid to PwC	2,103	2,252

notes to the Financial Statements Other disclosures (continued)

NOTE 20. RECONCiLiATiON OF NET PROFiT TO NET CASh FLOwS FROM OPERATiNg ACTiviTiES

(a) Reconciliation

(a) Reconciliation
	2015	2014
	$m	$m
Net proft/(loss) for the year	618.7	406.6
Capitalised interest	(6.0)	(6.1)
Depreciation and amortisation	2.8	2.3
Impairment of goodwill	0.1	0.1
Net fair value (gain)/loss of investment properties	(130.4)	(145.7)
Share of net (proft)/loss of investments accounted for using the equity method	(252.1)	(58.3)
Net fair value (gain)/loss of derivatives	(17.4)	2.1
Net fair value (gain)/loss of interest rate swaps	48.5	50.8
Amortisation of deferred borrowing costs	3.6	3.7
Net (gain)/loss on sale of investment properties	3.0	7.7
Net fair value (gain)/loss of interest bearing liabilities	15.9	(12.3)
Foreign currency translation reserve transfer on disposal of foreign operations	2.1	(0.8)
Reversal of previous impairment of management rights	–	(7.3)
Impairment of investments accounted for using the equity method	–	3.3
Transaction costs	–	23.9
Provision for doubtful debts	0.1	(0.5)
Distributions from investments accounted for using the equity method	217.6	79.0
Change in operating assets and liabilities
(Increase)/decrease in receivables	–	(70.9)
(Increase)/decrease in prepaid expenses	(4.5)	2.8
(Increase)/decrease in inventories	118.9	42.2
(Increase)/decrease in other current assets	(0.9)	(5.6)
(Increase)/decrease in other non-current assets	15.8	58.6
Increase/(decrease) in payables	5.9	12.8
Increase/(decrease) in current liabilities	(0.2)	0.6
Increase/(decrease) in other non-current liabilities	(1.3)	16.8
(Increase)/decrease in deferred tax assets	21.2	12.5
Net cash infow/(outfow) from operating activities	661.4	418.3

(b) Capital expenditure on investment properties

Payments for capital expenditure on investment properties include $118.3 million (2014: $94.8 million) of maintenance and incentive capital expenditure.

2015 dexus annual rePOrT 89

NOTE 21. SECURiTy-bASED PAyMENTS

The DXFM Board has approved a grant of performance rights to DXS stapled securities to eligible participants. Awards, via the 2012 Transitional Performance Rights Plan, Deferred Short Term Incentive Plans (DSTI) and Long Term Incentive Plans (LTI), will be in the form of performance rights awarded to eligible participants which convert to DXS stapled securities for nil consideration subject to satisfying specific service and performance conditions.

For each Plan, the eligible participants will be granted performance rights, based on performance against agreed key performance indicators, as a percentage of their remuneration mix. Participants must remain in employment for the vesting period in order for the performance rights to vest. Non-market vesting conditions, including Funds from Operations (FFO), Return on Equity (ROE) and employment status at vesting, are included in assumptions about the number of performance rights that are expected to vest. When performance rights vest, the Group will arrange for the allocation and delivery of the appropriate number of securities to the participant.

The fair value of performance rights granted is recognised as an employee benefit expense with a corresponding increase in the security-based payments reserve in equity. The total amount to be expensed is determined by reference to the fair value of the performance rights granted.

Key assumptions: fair value of performance rights granted

Judgement is required in determining the fair value of performance rights granted. In accordance with AASB 2 Share-based Payments, fair value is determined independently using Black-Scholes and Monte Carlo pricing models with reference to:

§ The expected life of the rights
§ The security price at grant date
§ The expected price volatility of the underlying security
§ The expected distribution yield and
§ The risk free interest rate for the term of the rights and expected total security-holder returns (where applicable)

The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the Group revises its estimates of the number of performance rights that are expected to vest based on the non-market vesting conditions. The impact of the revised estimates, if any, is recognised in profit or loss with a corresponding adjustment to equity.

(a) 2012 Transitional Performance Rights Plan

Subject to satisfying employment service conditions, the award has vested over a four year period ending 30 June 2015. No performance rights were granted in respect of the year ended 30 June 2015 (2014: nil). The fair value of the 2012 performance rights is $nil per performance right and the total security-based payment expense recognised during the year ended 30 June 2015 was $243,033 (2014: $457,863).

(b) Deferred Short Term Incentive Plan

25% of any award under the Short Term Incentive Plan (STI) for certain participants will be deferred and awarded in the form of performance rights to DXS securities.

50% of the performance rights awards will vest one year after grant and 50% of the awards will vest two years after grant, subject to participants satisfying employment service conditions. In accordance with AASB 2 Share-based Payments, the year of employment in which participants become eligible for the DSTI, the year preceding the grant, is included in the vesting period over which the fair value of the performance rights is amortised. Consequently, 50% of the fair value of the performance rights is amortised over two years and 50% of the award is amortised over three years.

The number of performance rights granted in respect of the year ended 30 June 2015 was 356,412 (2014: 374,448[1] ) and the fair value of these performance rights is $7.30 (2014: $6.66[1] ) per performance right. The total security-based payment expense recognised during the year ended 30 June 2015 was $1,974,287 (2014: $1,727,708).

(c) Long Term Incentive Plan

50% of the awards will vest three years after grant and 50% of the awards will vest four years after grant, subject to participants satisfying employment service conditions and performance hurdles. In accordance with AASB 2 Share-based Payments, the year of employment in which participants become eligible for the LTI, the year preceding the grant, is included in the vesting period over which the fair value of the performance rights is amortised. Consequently, 50% of the fair value of the performance rights is amortised over four years and 50% of the award is amortised over five years.

The number of performance rights granted in respect of the year ended 30 June 2015 was 533,328 (2014: 473,374[1] ). The fair value of these performance rights is $5.43 (2014: $4.98[1] ) per performance right. The total security-based payment expense recognised during the year ended 30 June 2015 was $1,302,660 (2014: $726,312).

1 Restated to reflect the one-for-six security consolidation.

notes to the Financial Statements Other disclosures (continued)

NOTE 22. RELATED PARTiES

Responsible Entity and Investment Manager

DXH is the parent entity of DXFM, the Responsible Entity of DDF, DIT, DOT and DXO and the Trustee of DOTA.

DXH is also the parent entity of DWPL, the Responsible Entity of DWPF.

DXH is the Investment Manager of DOTA.

Management fees

Under the terms of the Constitutions of the entities within the Group, the Responsible Entity and Investment Manager are entitled to receive fees in relation to the management of the Group. DXFM’s parent entity, DXH, is entitled to be reimbursed for administration expenses incurred on behalf of the Group. DEXUS Property Services Pty Limited (DXPS), a wholly owned subsidiary of DXH, is entitled to property management fees from the Group.

Related party transactions

Responsible Entity fees in relation to Group assets are on a cost recovery basis. All agreements with third party funds are conducted on normal commercial terms and conditions.

A loan of $338.4 million from DOTA was repaid during the year.

DEXUS Wholesale Property Fund

DEXUS Wholesale Property Fund
	2015	2014
	$’000	$’000
Responsible Entity fee income	28,050	24,115
Property management fee income	12,405	7,397
Rent paid	63	7
Responsible Entity fees receivable at the end of each reporting period (included above)	2,453	2,150
Property management fees receivable at the end of each reporting period (included above)	1,742	817
Administration expenses receivable at the end of each reporting period (included above)	89	125

Investments accounted for using the equity method

Investments accounted for using the equity method
	2015	2014
	$’000	$’000
Asset management fee income	10,214	2,331
Property management fee income	15,156	2,004
Rent paid	1,235	–
Responsible Entity fees receivable at the end of each reporting period (included above)	2,594	2,558
Property management fees receivable at the end of each reporting period (included above)	2,915	906
Administration expenses receivable at the end of each reporting period (included above)	511	63

2015 dexus annual rePOrT 91

Directors

The following persons were Directors of DXFM at all times during the year and to the date of this report, unless otherwise stated:

C T Beare, BSc, BE (Hons), MBA, PhD, FAICD[ 1,2,3,5,6,7] E A Alexander, AM, BComm, FCA, FAICD, FCPA[ 1,3,8] P Bingham-Hall, BA (Industrial Design), FAICD, SF (Fin)[ 1,7,9] J C Conde, AO, BSc, BE (Hons), MBA[ 1,2,6,7] T Dwyer, BJuris (Hons), LLB (Hons)[ 1,2,4,8,9] C D Mitchell, BComm, MBA (Exec), FCPA, HBS (AMP) W R Sheppard, BEc (Hons)[ 1,3,5,6,8,9] D J Steinberg, BEc, FAICD, FRICS, FAPI P B St George, CA(SA), MBA[ 1,5,8,9]

1 Independent Director.
2 Board Nomination, Remuneration & Governance Committee Member until 31 August 2014.
3 Board Audit, Risk & Sustainability Committee Member until 31 August 2014.
4 Board Compliance Committee Member until 31 August 2014.
5 Board Finance Committee Member until 31 August 2014.
6 Board Nomination Committee Member from 1 September 2014.
7 Board People & Remuneration Committee Member from 1 September 2014.
8 Board Audit Committee Member from 1 September 2014.
9 Board Risk Committee Member from 1 September 2014.

Other key management personnel

In addition to the Directors listed above, the following persons were deemed by the Board Nomination Committee to be key management personnel during all or part of the financial year:

name	Title
Ross Du Vernet	Executive General Manager, Strategy, Transactions & Research
Kevin George	Executive General Manager, Offce & Industrial

Key management personnel compensation

Key management personnel compensation
	2015	2014
	$’000	$’000
Compensation
Short-term employee benefts	7,453	7,428
Post employment benefts	220	189
Other long-term benefts	–	48
Security-based payments	2,595	1,995
	10,268	9,660

Equity instrument disclosures relating to key management personnel

The relevant interest in DXS stapled securities held during the financial year by each key management personnel, including their personally related parties, are set out below:

	Opening	One-for-six		Performance		Closing
	Balance	security		rights	Other	Balance
	1 July 2014	consolidation	Purchases	granted	change	30 June 2015
Directors	3,993,960	(3,328,298)	8,334	394,191	–	1,068,187
Other key management personnel	1,324,458	(1,103,715)	–	127,653	–	348,396
Total	5,318,418	(4,432,013)	8,334	521,844	–	1,416,583

The DXFM Board has approved a grant of performance rights to DXS stapled securities to eligible participants (refer to note 21). Details of the number of performance rights issued to each of the key management personnel are set out in section 3 of the Directors’ Report.

There were no loans or other transactions with key management personnel or their related parties during the years ended 30 June 2015 and 30 June 2014.

notes to the Financial Statements Other disclosures (continued)

NOTE 23. PARENT ENTiTy DiSCLOSURES

The financial information for the parent entity of DEXUS Diversified Trust has been prepared on the same basis as the consolidated Financial Statements except as set out below:

Distributions received from associates are recognised in the parent entity’s Statement of Comprehensive Income, rather than being deducted

from the carrying amount of these investments.

Interests held by the parent entity in controlled entities are measured at fair value through profit and loss to reduce a measurement or recognition inconsistency.

(a) Summary financial information

The individual Financial Statements for the parent entity show the following aggregate amounts:

	2015	2014
	$m	$m
Total current assets	105.6	950.1
Total assets	3,724.6	2,581.9
Total current liabilities	183.4	982.8
Total liabilities	1,535.0	564.8
Equity
Contributed equity	1,990.6	1,833.4
Reserves	8.6	(9.4)
Retained profts	190.4	193.1
Total equity	2,189.6	2,017.1
Net proft/(loss) for the year	174.7	141.4
Total comprehensive income/(loss) for the year	192.6	132.1

(b) Guarantees entered into by the parent entity

Refer to note 14(b) for details of guarantees entered into by the parent entity.

(c) Contingent liabilities

The parent entity had no contingent liabilities as at 30 June 2015 (2014: nil).

(d) Capital commitments

The following amounts represent capital expenditure of the parent entity on investment properties contracted at the end of the reporting period but not recognised as liabilities payable:

	2015	2014
	$m	$m
Investment properties	3.0	6.5
Total capital commitments	3.0	6.5

NOTE 24. SUbSEqUENT EvENTS

On 1 July 2015, the Group and DWPF exchanged contracts to jointly acquire Waterfront Place at 1 Eagle Street and Eagle Street Pier at 45 Eagle Street Brisbane, QLD, for $635.0 million excluding acquisition costs.

On 31 July 2015, settlement occurred on the sale of 154 O’Riordan Street, Mascot, NSW for gross proceeds of $32.0 million.

On 21 July 2015, settlement occurred on the sale of 5-13 Rosebery Avenue and 25-55 Rothschild Avenue, Rosebery, NSW for gross proceeds of $171.0 million.

On 4 August 2015, settlement occurred on the sale of Units 10/11, 108 Silverwater Road, Silverwater, NSW for gross proceeds of $5.5 million.

Since the end of the year, other than the matters disclosed above, the Directors are not aware of any matter or circumstance not otherwise dealt within their Directors’ Report or the Financial Statements that has significantly or may significantly affect the operations of the Group, the results of those operations, or state of the Group’s affairs in future financial periods.

2015 dexus annual rePOrT 93

Directors’ Declaration

The Directors of DEXUS Funds Management Limited as Responsible Entity of DEXUS Diversified Trust declare that the Financial Statements and notes set out on pages 48 to 92:

(i) Comply with Australian Accounting Standards, the Corporations Act 2001 and other mandatory professional reporting requirements; and
(ii) Give a true and fair view of the Group’s financial position as at 30 June 2015 and of their performance, as represented by the results of their operations and their cash flows, for the year ended on that date

In the Directors’ opinion:

(a) The Financial Statements and notes are in accordance with the Corporations Act 2001
(b) There are reasonable grounds to believe that the Group and its consolidated entities will be able to pay their debts as and when they become due and payable; and
(c) The Group has operated in accordance with the provisions of the Constitution dated 15 August 1984 (as amended) during the year ended 30 June 2015

The Financial Statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the Directors.

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Christopher T Beare Chair

11 August 2015

Independent auditor’s report

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Independent auditor’s report to the stapled security holders of DEXUS Diversified Trust

Report on the financial report

We have audited the accompanying financial report of DEXUS Diversified Trust (the registered scheme), which comprises the consolidated statement of financial position as at 30 June 2015, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for DEXUS Property Group (the consolidated entity). DEXUS Property Group comprises the registered scheme and the entities it controlled at year’s end or from time to time during the financial year as disclosed in the Basis of preparation.

Directors’ responsibility for the financial report

The directors of DEXUS Funds Management Limited (the responsible entity) are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In the Basis of preparation, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that the financial statements comply with International Financial Reporting Standards.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 .

PricewaterhouseCoopers, ABN 52 780 433 757

Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

2015 dexus annual rePOrT 95

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Auditor’s opinion

In our opinion:

(a) the financial report of DEXUS Diversified Trust is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the consolidated entity's financial position as at 30 June 2015 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 .
(b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in the Basis of preparation.

Report on the Remuneration Report

We have audited the remuneration report included in pages 3 to 22 of the directors’ report for the year19 to 33 ended 30 June 2015. The directors of the registered scheme are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s opinion

In our opinion, the remuneration report of DEXUS Diversified Trust for the year ended 30 June 2015 complies with section 300A of the Corporations Act 2001 .

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PricewaterhouseCoopers

==> picture [59 x 43] intentionally omitted <==

E A Barron Partner

Sydney 11 August 2015

additional Information

TOP 20 SECURiTy hOLDERS AT 31 JULy 2015

Rank	name	no. of units	% of issued capital
1	HSBC Custody Nominees (Australia) Limited	324,048,411	33.38
2	National Nominees Limited	210,363,360	21.67
3	J P Morgan Nominees Australia Limited	170,310,454	17.54
4	Citicorp Nominees Pty Limited	88,077,526	9.07
5	BNP Paribas Nominees Pty Ltd	28,714,822	2.96
6	Amp Life Limited	10,076,792	1.04
7	Citicorp Nominees Pty Limited	8,689,040	0.90
8	RBC Investor Services Australia Nominees Pty Limited	7,670,207	0.79
9	Questor Financial Services Limited	4,909,936	0.51
10	Bond Street Custodians Limited	2,561,247	0.26
11	Ecapital Nominees Pty Limited	1,212,916	0.12
12	BNP Paribas Nominees (NZ) Ltd	1,151,987	0.12
13	RBC Investor Services Australia Nominees Pty Limited	1,117,909	0.12
14	Merrill Lynch (Australia) Nominees Pty Limited	1,106,500	0.11
15	Navigator Australia Ltd	993,922	0.10
16	Bond Street Custodians Limited < Pure Indexed Equities A/C>	917,458	0.09
17	Bond Street Custodians Limited	853,562	0.09
18	RBC Investor Services Australia Nominees Pty Limited	840,113	0.09
19	Pacifc Custodians Pty Limited DXS Plans Ctrl	775,075	0.08
20	Questor Financial Services Limited	722,891	0.07
	Total top 20 security holders	865,114,128	89.11
	Balance of register	105,692,221	10.89
	Total securities on issue	970,806,349	100.00

SUbSTANTiAL hOLDERS AT 31 JULy 2015

The names of substantial holders, who at 31 July 2015 have notified the Responsible Entity in accordance with Section 671B of the Corporations Act 2001, are:

		number of
Date	name	stapled securities	% voting
28-Jan-11	ING Group1	388,416,434	8.03%
17-Jan-14	The Bank of New York Mellon ATF Newton Investment	335,701,104	7.25%
	Management1
27-Feb-15	Vanguard Group	63,740,651	7.04%
24-Mar-14	Blackrock Group1	366,488,530	6.81%
04-Jul-13	AMP Limited1	237,591,500	5.05%
19-Nov-14	Commonwealth Bank of Australia	45,279,875	5.00%

These substantial holders lodged notices prior to DEXUS undertaking a One-for-Six Security Consolidation in October 2014. Therefore the number of securities and voting % for these substantial holders are as stated on the forms lodged with ASX at that time.

2015 dexus annual rePOrT 97

CLASS OF SECURiTiES

DEXUS Property Group has one class of stapled security trading on the ASX with security holders holding stapled securities at 31 July 2015.

Spread of securities at 31 July 2015

Spread of securities at 31 July 2015
Range	Securities	%	no. of Holders
100,001 and Over	880,535,206	90.70	73
50,001 to 100,000	2,688,412	0.28	41
10,001 to 50,000	21,654,587	2.23	1,302
5,001 to 10,000	21,704,294	2.24	3,157
1,001 to 5,000	38,296,813	3.94	16,019
1 to 1,000	5,927,037	0.61	11,741
Total	970,806,349	100.00	32,333

At 31 July 2015, the number of security holders holding less than a marketable parcel of 65 Securities ($500) was 379 and they hold in total 2,285 securities.

vOTiNg RighTS

At meetings of the security holders of DEXUS Diversified Trust, DEXUS Industrial Trust, DEXUS Office Trust and DEXUS Operations Trust, being the Trusts that comprise DEXUS Property Group, on a show of hands, each security holder of each Trust has one vote. On a poll, each security holder of each Trust has one vote for each dollar of the value of the total interests they have in the Trust.

SECURiTiES RESTRiCTED OR SUbJECT TO vOLUNTARy ESCROw

There are no stapled securities that are restricted or subject to voluntary escrow.

ON-MARkET bUy-bACk

DEXUS announced an on-market securities buy-back program on 14 October 2014 for up to 5% of securities. This buy-back program was closed on 21 April 2015 and no securities were acquired.

COST bASE APPORTiONMENT

For capital gains tax purposes, the cost base apportionment details for DEXUS securities for the 12 months ended 30 June 2015 are:

	DEXuS	DEXuS	DEXuS	DEXuS
Date	Diversifed Trust	Industrial Trust	Ofce Trust	OperatingTrust
1 Jul 2014 to 31 Dec 2014	33.35	14.37	49.07	3.21
1 Jan 2015 to 30 Jun 2015	33.32	14.39	48.67	3.62

Historical cost base details are available in the downloads area at www.dexus.com/dxs/tax

Investor Information

DEXUS recognises the importance of communication with existing and potential institutional investors, sell‑side analysts and retail investors.

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----- Start of picture text -----

Domestic
Institutional
34%
DEXUS
Investor
UK % Base DomesticRetail
North 11 Europe 10%
America 10 [%]
26 [%] Offshore
Institutional
56%
Asia
9 [%]
Australia
44 [%]
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The senior management of DEXUS, maintain a strong rapport with the investment community through proactive and regular investor engagement initiatives.

DEXUS is committed to delivering high levels of transparency and disclosure by:

§ Releasing accurate and relevant information to investors to ensure they can make informed investment decisions
§ Providing regular access to senior management through one-on-one meetings, presentations, property tours, conferences, dedicated investor roadshows, conference calls and webcasts

During FY15, DEXUS senior management together with the Investor Relations (IR) team held 300 meetings to discuss the Group’s business strategy, and operational and financial performance. DEXUS hosted its inaugural Investor Day in October 2014, highlighting the Group’s capabilities and provided an update on its September 2014 quarter results and long term strategic initiatives. DEXUS also participated in investor conferences and roadshows in Australia, Singapore, Hong Kong, London, New York and Japan. These conferences and roadshows enabled access to potential new investors and assisted with strengthening existing relationships with long term investors.

The IR team arranged tours of DEXUS’s properties with investors and sell-side analysts to increase awareness of the quality of the portfolio and DEXUS’s active asset management approach. DEXUS also introduced a new initiative for retail investors which included a property tour of a number of its Sydney CBD office properties following its Annual General Meeting in 2014.

Twice a year, DEXUS commissions an independent investor perception study to gather feedback from the institutional investment community. The study involves an independent consultant conducting interviews with institutional investors and sell-side analysts to gauge investor thoughts on a number of attributes and report on the findings. The results help DEXUS’s Board and Executive team understand the investment community’s perceptions and concerns and assists in the development of DEXUS’s communications and enhancing the effectiveness of the Group’s Investor Relations efforts.

ANNUAL gENERAL MEETiNg

On Wednesday, 28 October 2015, DEXUS’s Annual General Meeting (AGM) will be held at DEXUS Place, Level 5, 1 Margaret Street, Sydney commencing at 2.00pm. Investors are encouraged to attend the AGM in person to meet the Board of Directors and the Executive team. The AGM will be webcast at www.dexus.com for investors who are unable to attend in person.

2015 dexus annual rePOrT 99

DiSTRibUTiON PAyMENTS

MAkiNg CONTACT

DEXUS’s payout policy is to distribute in line with free cash flow. Distributions are paid for the six month period to 31 December and 30 June each year. Distribution statements are available in print and electronic formats and distributions are paid via direct credit into nominated bank accounts or by cheque. To change the method of receiving distributions, please use the investor login facility at www. dexus.com/update

This service is available from 8.30am to 5.30pm (Sydney time) on all business days.

All correspondence should be addressed to:

DEXUS Property Group C/- Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 [email protected]

UNCLAiMED DiSTRibUTiON iNCOME

Unpresented cheques or unclaimed distribution income can be claimed by contacting the DEXUS Infoline on +61 1800 819 675. For monies outstanding greater than seven years, please contact the NSW Office of State Revenue on +61 1300 366 016, use their search facility at osr.nsw.gov.au or email [email protected]

ANNUAL TAXATiON STATEMENTS

An annual taxation statement is sent to investors in August each year. The statement summarises distributions provided during the financial year and includes information required to complete your tax return. Annual taxation statements are also available online at www.dexus.com/update

Investor Relations DEXUS Property Group PO Box R1822 Royal Exchange NSW 1225 [email protected]

DEXUS Funds Management Limited is a member of the Financial Ombudsman Service (FOS), an independent dispute resolution scheme. If you are not satisfied with the resolution of your complaint, you may refer your complaint to FOS.

2016 REPORTiNg CALENDAR

2016 DiSTRibUTiON CALENDAR 2015 Annual General Meeting 28 October 2015 2016 Half year results 17 February 2016	2016 Annual results 17 August 2016 2016 Annual General Meeting 26 October 2016 , refer your complaint to FOS. Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Phone: 1300 780 808 Email: [email protected]	2016 Annual results 17 August 2016 2016 Annual General Meeting 26 October 2016 , refer your complaint to FOS. Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Phone: 1300 780 808 Email: [email protected]	2016 Annual results 17 August 2016 2016 Annual General Meeting 26 October 2016 , refer your complaint to FOS. Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Phone: 1300 780 808 Email: [email protected]	2016 Annual results 17 August 2016 2016 Annual General Meeting 26 October 2016 , refer your complaint to FOS. Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Phone: 1300 780 808 Email: [email protected]
Period end 31 Dec 2015 30 Jun 2016*	ASX announcement 22 Dec 2015 24 Jun 2016	Ex-distribution date 29 Dec 2015 29 Jun 2016	Record date 31 Dec 2015 30 Jun 2016	Payment date 29 Feb 2016 31 Aug 2016

On 7 March 2016, the ASX is proposing to implement a new T+2 settlement cycle, which will affect the distribution timetable for the period to 30 June 2016. The timetable is proposed to change to T+4 business days to incorporate the T+2 settlement cycle change. Dates have been quoted on the basis of the change being implemented.

Please note that these dates are indicative and are subject to change without prior notice. Any changes in our key dates will be published on our website.

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gO ELECTRONiC FOR CONvENiENCE AND SPEED

Did you know you can opt to receive all or part of your security holder communication electronically. You can change your communication preferences at any time by logging into

www.dexus.com/update

or by contacting Link Market Services on 1800 819 675.

iNvESTOR COMMUNiCATiONS

DEXUS’s website

www.dexus.com provides a wide range of information, including a two minute corporate video, ASX announcements, investor information and reports. In 2015, the Group released a suite of capability profiles, strategic case studies and videos all available at www.dexus.com/news

Other investor tools available include:

§ Online enquiry – www.dexus.com/enquire is an easy to complete online enquiry form
§ Investor login – www.dexus.com/update enables investors to update their details and download statements
§ Subscribe to alerts – www.dexus.com/subscribe enables investors to receive DEXUS communications immediately after release
§ Create your own property or leasing reports – select and download information on our property portfolio and space available
§ Events calendar – notifies investors of key events and reporting dates
§ DEXUS IR App – provides users access to DEXUS’s investor communications and security price – download for free from Apple’s App Store or Google Play
§ LinkedIn – DEXUS now engages with its followers via LinkedIn. To receive DEXUS LinkedIn communications, visit our Investor Centre at www.dexus.com/investors and click on DEXUS on LinkedIn – Follow us

100

Key asx announcements

Key ASX	announcements
12.08.15	2015 Property Synopsis and Debt Summary
12.08.15	2015 Annual Results Presentation
12.08.15	2015 Annual Results Release
12.08.15	2015 Final distribution details
12.08.15	Appendix 4E and Financial Reports as at 30 June 2015
31.07.15	Securities Trading Policy
09.07.15	Appendix 3Y – Darren Steinberg
09.07.15	Appendix 3Y – Craig Mitchell
23.06.15	Distribution details for six months to 30 June 2015
23.06.15	Appendix 3A.1 Notifcation of Distribution
22.06.15	DEXUS and DWPF acquire Waterfront Place & Eagle Street Pier
19.06.15	Issue and allotment under Security Purchase Plan
11.06.15	DEXUS announces successful completion of Security Purchase Plan
11.05.15	Despatch of DEXUS Security Purchase Plan
06.05.15	Macquarie Australia Conference presentation
05.05.15	March 2015 quarter portfolio update
05.05.15	DEXUS Security Purchase Plan
28.04.15	DEXUS announces issue and allotment under institutional placement and announces fnal timetable for security purchase plan
22.04.15	DEXUS announces successful completion of institutional placement
21.04.15	Appendix 3F – fnal share buy-back notice
21.04.15	DEXUS announces equity raising
27.02.15	31 December 2014 distribution
18.02.15	Appendix 4D and Financial Accounts at 31 December 2014
18.02.15	HY15 Results Release and Review
18.02.15	HY15 Results Presentation
18.02.15	HY15 Property Synopsis
16.01.15	DEXUS settles on the acquisition of Lakes Business Park, Botany
29.12.14	Acquisition of strategic industrial property
19.12.14	December 2014 distribution details
19.12.14	Appendix 3A.1 Notifcation of Distribution
19.12.14	Challenger secured at 5 Martin Place, Sydney
01.12.14	DEXUS settles on sale of 50 Carrington Street, Sydney
18.11.14	DEXUS settles on the sale of remaining offshore property
14.11.14	Completion of one-for-six DEXUS Security Consolidation
05.11.14	Appendix 3Y – change of directors interest notice
05.11.14	Appendix 3Y – change of directors interest notice
04.11.14	Appendix 3D – change relating to buy-back
31.10.14	General Counsel and Company Secretary appointment
29.10.14	One-for-six Security Consolidation
29.10.14	2014 Annual General Meeting
29.10.14	2014 Annual General Meeting results
29.10.14	Consolidated Constitutions
21.10.14	September 2014 quarterly update
21.10.14	2014 Investor Day presentation
16.10.14	DEXUS presentation to ASX Investor Series
14.10.14	DEXUS on-market securities buy-back
15.09.14	Notice of AGM
11.09.14	Appendix 3Y – Penny Bingham-Hall
29.08.14	30 June 2014 distribution details
29.08.14	2014 Annual reporting suite
29.08.14	2014 DEXUS Annual Report
25.08.14	New tenant secured for Brisbane development
22.08.14	Appendix 3Y – change of directors interest notice

2015 Dexus annual rePOrT 101

DEXUS DivERSiFiED TRUST

ARSN 089 324 541

DEXUS iNDUSTRiAL TRUST

ARSN 090 879 137

DEXUS OFFiCE TRUST ARSN 090 768 531

DEXUS OPERATiONS TRUST

ARSN 110 521 223

RESPONSibLE ENTiTy

DEXUS Funds Management Limited ABN 24 060 920 783 AFSL 238163

DiRECTORS OF ThE RESPONSibLE ENTiTy

Christopher T Beare, Chair Elizabeth A Alexander AM Penny Bingham-Hall John C Conde AO Tonianne Dwyer Craig D Mitchell, COO W Richard Sheppard Darren J Steinberg, CEO Peter B St George

SECRETARiES OF ThE RESPONSibLE ENTiTy

Brett Cameron Scott Mahony

iNvESTOR ENqUiRiES

Registry Infoline: +61 1800 819 675 Investor Relations: +61 2 9017 1330 Email: [email protected] www.dexus.com

SECURiTy REgiSTRy

Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000

Locked Bag A14 Sydney South NSW 1235 Registry Infoline: +61 1800 819 675 Fax: +61 2 9287 0303 Email: [email protected] www.linkmarketservices.com.au

Open Monday to Friday between 8.30am and 5.30pm (Sydney time).

For enquiries regarding security holdings, contact the security registry, or access security holding details at www.dexus.com/update

AUSTRALiAN SECURiTiES EXChANgE

ASX Code: DXS

iR APP

Download the DEXUS IR App to gain instant access to the latest DEXUS stock price, ASX announcements, presentations, reports, webcasts and more.

DEXUS now engages with its followers via LinkedIn – www.dexus.com/investors and click on DEXUS on LinkedIn – Follow us.

REgiSTERED OFFiCE OF ThE RESPONSibLE ENTiTy

Level 25, Australia Square 264 George Street Sydney NSW 2000 PO Box R1822 Royal Exchange Sydney NSW 1225 Phone: +61 2 9017 1100 Fax: +61 2 9017 1101 Email: [email protected] www.dexus.com

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AUDiTORS

PricewaterhouseCoopers Chartered Accountants 201 Sussex Street Sydney NSW 2000

Property expertise. Institutional rigour. Entrepreneurial spirit.

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www.dexus.com

AI assistant

DEXUS — Annual Report 2015

64807_rns_2015-08-30_55093ccf-b388-46f4-8e89-e1542318d7a2.pdf

31 August 2015

2015 Annual reporting suite

About DEXUS

DEXUS

DEXUS ANNUAL REVIEW 2015

ABOUT THIS REPORT

REPORT SCOPE

INDEPENDENT ASSURANCE

2015 Highlights

$ 635mm

Contents

OVERVIEW

PERFORMANCE

PEOPLE

2015 ANNUAL REPORTING SUITE

About DEXUS

$19.1bn

$9.5bn

$9.6bn

Chair and CEO Review

We are pleased to present the 2015 Annual Review for DEXUS Property Group.

DELIVERING ON STRATEGY

MARKET CONDITIONS

STRONG RETURNS FROM COMMONWEALTH PROPERTY OFFICE FUND TAKEOVER

DELIVERING SOLID SECURITY HOLDER RETURNS

FOCUS ON THE CUSTOMER

MAINTAINING A STRONG BALANCE SHEET

CREATING VALUE THROUGH DEVELOPMENT

DEXUS Offi ce Partnership

DELIVERING A QUALITY RESULT FOR INVESTORS AND OUR PARTNER

DEXUS APPROACH

VALUE CREATED

CREATING A HIGH PERFORMANCE CULTURE

DRIVING BUSINESS EXCELLENCE AND HARNESSING INNOVATION ACROSS THE GROUP

ENHANCING ENVIRONMENTAL PERFORMANCE

DEXUS APPROACH

VALUE CREATED

DEXUS RECOGNISED FOR ITS PERFORMANCE IN SUSTAINABILITY

SUSTAINABILITY APPROACH

ANNUAL GENERAL MEETING

OUTLOOK AND FUTURE PRIORITIES

BOARD OF DIRECTORS

Strategy

Vision

Strategy

1. Investing in and developing properties and spaces that DEXUS customers (tenants) want to occupy

3. Partnering with third parties to grow in core markets and attract expertise

2. Constantly improving the levels of service and amenity provided to customers

4. Maintaining a conservative approach to financial and operational risk

KEY EARNINGS DRIVERS – FY15 RESULTS

Delivering FY15 Commitments

Investors

OFFICE AND INDUSTRIAL

CORPORATE RESPONSIBILITY & SUSTAINABILITY

Tenants/Customers

Suppliers

Sustainability Approach

Supporting Employees

Community

Environment

FY16 Commitments

Material Issues

DEXUS’S MATERIALITY ASSESSMENT

1. Identify

2. Engage

3. Prioritise

4. Disclose

2015 GRI G4 MATERIALITY INDEX

Governance

COMMITMENT TO EXCELLENCE IN CORPORATE GOVERNANCE

www.dexus.com/corporategovernance

MANAGING RISK

Market Outlook

INVESTMENT CLIMATE

OFFICE MARKETS

MARKET FACTORS AND ASSUMPTIONS

INDUSTRIAL MARKETS

DEXUS Annual Report 2015