DEXUS — Annual Report 2018

Aug 14, 2018

Dexus (ASX: DXS)

ASX release

15 August 2018

2018 Financial Statements

In addition to Dexus's 2018 Annual Report, which includes the Financial Statements for Dexus Diversified Trust, we provide the 2018 Financial Statements for Dexus Industrial Trust, Dexus Office Trust and Dexus Operations Trust.

For further information please contact:

Investor Relations Rowena Causley +61 2 9017 1390 +61 416 122 383 rowena.causley@dexus.com Media Relations Louise Murray +61 2 9017 1446 +61 403 260 754 louise.murray@dexus.com

About Dexus

Dexus is one of Australia's leading real estate groups, proudly managing a high quality Australian property portfolio valued at \$27.2 billion. We believe that the strength and quality of our relationships will always be central to our success, and are deeply committed to working with our customers to provide spaces that engage and inspire. We invest only in Australia, and directly own \$13.3 billion of office and industrial properties. We manage a further \$13.9 billion of office, retail, industrial and healthcare properties for third party clients. The group's \$4.2 billion development pipeline provides the opportunity to grow both portfolios and enhance future returns. With 1.7 million square metres of office workspace across 53 properties, we are Australia's preferred office partner. Dexus is a Top 50 entity by market capitalisation listed on the Australian Securities Exchange (trading code: DXS) and is supported by 27,000 investors from 20 countries. With more than 30 years of expertise in property investment, development and asset management, we have a proven track record in capital and risk management, providing service excellence to tenants and delivering superior risk-adjusted returns for investors. www.dexus.com

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

Dexus Industrial Trust Financial Report 30 June 2018

	Directors' Report 1
	Auditor's Independence Declaration 7
	Consolidated Statement of Comprehensive Income 8
	Consolidated Statement of Financial Position 9
	Consolidated Statement of Changes in Equity 10
	Consolidated Statement of Cash Flows 11
	About This Report 12
	Notes to the Financial Statements 15
	Trust performance 16
Note 1	Operating segments 16
Note 2	Property revenue and expenses 16
Note 3	Finance costs 16
Note 4	Earnings per unit 17
Note 5	Distributions paid and payable 17
	Property portfolio assets 18
Note 6	Investment properties 18
	Capital and financial risk management and working capital 21
Note 7	Capital and financial risk management 21
Note 8	Commitments and contingencies 26
Note 9	Contributed equity 27
Note 10	Working capital 28
	Other disclosures 30
Note 11	Audit, taxation and transaction service fees 30
Note 12	Cash flow information 30
	Note 13 Related parties 31
	Note 14 Parent entity disclosures 32
	Note 15 Subsequent events 32
	Directors' Declaration 33
	Independent Auditor's Report 34

Directors' Report

The Directors of Dexus Funds Management Limited (DXFM) as Responsible Entity of Dexus Industrial Trust (DIT or the Trust) present their Directors' Report together with the consolidated Financial Statements for the year ended 30 June 2018. The consolidated Financial Statements represents DIT and its consolidated entities.

The Trust together with Dexus Diversified Trust (DDF), Dexus Operations Trust (DXO) and Dexus Office Trust (DOT) form the Dexus (DXS or the Group) stapled security.

Directors and Secretaries

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	Resigned
W Richard Sheppard, BEc (Hons), FAICD	1 January 2012
Elizabeth A Alexander, AM, BComm, FCA, FAICD, FCPA	1 January 2005	24 October 2017
Penny Bingham-Hall, BA (Industrial Design), FAICD, SF (Fin)	10 June 2014
John C Conde, AO, BSc, BE (Hons), MBA, FAICD	29 April 2009
Tonianne Dwyer, BJuris (Hons), LLB (Hons)	24 August 2011
Mark Ford, Dip. Tech (Commerce), CA, FAICD	1 November 2016
The Hon. Nicola L Roxon, BA/LLB (Hons), GAICD	1 September 2017
Darren J Steinberg, BEc, FRICS, FAPI, FAICD	1 March 2012
Peter B St George, CA(SA), MBA	29 April 2009

Company Secretaries

The names and details of the Company Secretaries of DXFM as at 30 June 2018 are as follows:

Brett D Cameron LLB/BA (Science and Technology), GAICD, FGIA

Appointed: 31 October 2014

Brett is the General Counsel and Company Secretary of Dexus 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 22 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 and a Fellow of the Governance Institute of Australia.

Rachel Caralis LLB/B Com (Acc), M Com (Property Development), Grad Dip (Applied Corporate Governance) AGIA, AAPI

Appointed: 17 February 2016

Rachel is Senior Legal Counsel and Company Secretary of Dexus.

Rachel joined Dexus in 2008 after five years at King and Wood Mallesons where she worked in the real estate and projects team. Rachel has 15 years' experience as in-house counsel and in private practice working on real estate and corporate transactions, funds management and corporate finance for wholesale and listed clients.

Rachel graduated from the University of Canberra with a Bachelor of Laws and Bachelor of Commerce (Accounting), has completed a Masters of Commerce (Property Development) at the University of Western Sydney and a Graduate Diploma in Applied Corporate Governance at the Governance Institute of Australia. Rachel is a member of the Law Society of New South Wales, an associate of the Australian Property Institute and an associate of the Governance Institute of Australia.

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 13 times during the year. Ten Board meetings were main meetings and three meetings were held to consider specific business.

	Main meetings held	Main meetings attended	Specific meetings held	Specific meetings attended
W Richard Sheppard	10	10	3	3
Elizabeth A Alexander, AM 1	4	4	-	-
Penny Bingham-Hall	10	10	3	3
John C Conde, AO	10	10	3	3
Tonianne Dwyer	10	10	3	3
Mark Ford	10	9	3	3
The Hon. Nicola L Roxon 2	8	8	3	3
Darren J Steinberg	10	10	3	3
Peter B St George	10	10	3	3

1 Ceased directorship 24 October 2017.

2 Commenced directorship on 1 September 2017.

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.

The table below shows non-executive Directors' attendances at Board Committee meetings of which they were a member during the year ended 30 June 2018.

		Board Audit Committee		Board Risk Committee		Board Nomination Committee		Board People and Remuneration Committee
	Held	Attended	Held	Attended	Held	Attended	Held	Attended
W Richard Sheppard	-	-	-	-	4	4	5	5
Elizabeth A Alexander,AM1	1	1	-	-	-	-	-	-
Penny Bingham-Hall	-	-	4	4	4	4	5	5
John C Conde, AO	3	3	-	-	4	4	1	1
Tonianne Dwyer	4	4	4	4	-	-	-	-
The Hon. Nicola L Roxon2	-	-	3	3	-	-	4	4
Mark Ford	4	4	4	4	-	-	-	-
Peter B St George	4	4	4	4	-	-	-	-

1 Ceased directorship 24 October 2017.

2 Commenced directorship on 1 September 2017.

Elizabeth A Alexander and Tonianne Dwyer were also Directors of Dexus Wholesale Property Limited (DWPL) and attended DWPL Board meetings during the year ended 30 June 2018. John Conde joined as a Director of Dexus Wholesale Property Limited (DWPL) on 25 October 2017.

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
W Richard Sheppard	70,090
Penny Bingham-Hall	16,534
John C Conde, AO	16,667
Tonianne Dwyer	16,667
Mark Ford	1,667
The Hon. Nicola L Roxon	Nil
Darren J Steinberg	1,219,571
Peter B St George	17,333

Operating and financial review

The relevant financial information for the year ended 30 June 2018 were:

• profit attributable to unitholders was \$94.2 million (2017: \$110.0 million)
• total assets were \$980.5 million (2017: \$1,113.1 million)
• net assets were \$943.4 million (2017: \$1,067.2 million)

A review of the results, financial position and operations of the Group, of which the Trust forms part thereof, is set out in the Operating and Financial Review of the Dexus Financial Report and forms part of this Directors' Report.

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
W Richard Sheppard	Star Entertainment Group	21 November 2012
Penny Bingham-Hall	BlueScope Steel Limited	29 March 2011
	Fortescue Metals Group Ltd	16 November 2016
John C Conde, AO	Whitehaven Coal Limited	3 May 2007
	Cooper Energy Limited	25 February 2013
Tonianne Dwyer	Cardno Limited3	25 June 2012
	Metcash Limited	24 June 2014
	ALS Limited	1 July 2016
	OZ Minerals Limited	21 March 2017
The Hon. Nicola L Roxon	Lifestyle Communities Limited	1 September 2017
Peter B St George	First Quantum Minerals Limited1	20 October 2003
Mark Ford	Kiwi Property Group Limited2	May 2011

1 Listed for trading on the Toronto Stock Exchange in Canada.

2 Listed for trading on the New Zealand Stock Exchange since 22 December 2014.

3 Directorship ceased 27 January 2016.

Principal activities

During the year the principal activity of the Trust was to own, manage and develop high quality real estate assets for future use as investment properties. There were no significant changes in the nature of the Trust's activities during the year.

Total value of Trust assets

The total value of the assets of the Trust as at 30 June 2018 was \$980.5 million (2017: \$1,113.1 million). Details of the basis of this valuation are outlined in the Notes to the Financial Statements and form part of this Directors' Report.

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 Trust, other than the information already outlined in this Directors' Report or the Financial Statements accompanying this Directors' Report would be unreasonably prejudicial to the Trust.

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 Trust, the results of those operations, or the state of the Trust's affairs in future financial years.

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 Trust, the results of those operations, or the state of the Trust's affairs in future financial years.

Distributions

Distributions paid or payable by the Trust for the year ended 30 June 2018 are outlined in note 5 of the Notes to the Financial Statements and form part of this Directors' Report..

DXFM fees

Details of fees paid or payable by the Trust for the year ended 30 June 2018 are outlined in note 13 of the Notes to the Financial Statements and form part of this Directors' Report.

Units on Issue

The movement in units on issue in the Trust during the year and the number of units on issue as at 30 June 2018 are detailed in note 9 of the Notes to the Financial Statements and form part of this Directors' Report.

Environmental regulation

DXS senior management, through its Board Risk Committee, oversees 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.

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 Trust pursuant to the Dexus Specific Terms of Business agreed for all engagements with PwC, to the extent that the Trust 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.

Directors' Report (continued)

Audit

Auditor

PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.

Non-audit services

The Trust may decide to employ the Auditor on assignments, in addition to its statutory audit duties, where the Auditor's expertise and experience with the Trust and/or DXS 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 11 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:

• All non-audit services have been reviewed by the Board Audit Committee to ensure that they do not impact the impartiality and objectivity of the auditor
• None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants.

The above Directors' statements are in accordance with the advice received from the Board Audit Committee.

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 7 and forms part of this Directors' Report.

Corporate governance

DXFM's Corporate Governance Statement is available at: www.dexus.com/corporategovernance

Rounding of amounts and currency

As the Trust is an entity of the kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, the Directors have chosen to round amounts in this Directors' Report and the accompanying Financial Report to the nearest thousand dollars, unless otherwise indicated. The Trust is an entity to which the Instrument applies. All figures in this Directors' Report and the Financial Statements, except where otherwise stated, are expressed in Australian dollars.

Auditor's Independence Declaration

As lead auditor for the audit of Dexus Industrial Trust for the year ended 3o June zor8, I declare that to the best of my knowledge and belief, there have been:

• (a) no contraventions of the auditor independence requirements of the Corporations Act 2oo1in relation to the audit; and
• (b) no contraventions ofanyapplicable code ofprofessional conductin relationto the audit.

This declaration is in respect of Dexus Industrial Trust and the entities it controlled during the period.

Matthew Lunn Partner PricewaterhouseCoopers

Sydney 14 August 2018

PriceuqtqhouseCoopers, ABN gc 78o 4gg 757 OnelnternationalTowersSydney,WatermansQuay,Barangaroo,GPOBOXz6go,smNEy NSW zoot T: +6t z 8266 oooo, F: +6t z 8266 9999,www.pwc.com.au Leuel n, ;?SQ, t6g Macquarie Street, Parramatta NSW zt5o, PO Box ttgg Parramatta NSW ztz4 T: +6t z 9699 2476, F: +6t z 8266 9999,uutD.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2018

		2018	2017
	Note	\$'000	\$'000
Revenue from ordinary activities
Property revenue	2	52,848	57,848
Interest revenue		13,088	11,764
Total revenue from ordinary activities		65,936	69,612
Net fair value gain of investment properties		43,232	53,686
Net gain on sale of investment properties		6	-
Net fair value gain of derivatives		-	328
Net foreign exchange gain		-	1,440
Total income		109,174	125,066
Expenses
Property expenses	2	(11,517)	(12,373)
Management fee expense		(2,126)	(2,067)
Finance costs	3	(793)	(140)
Management operations, corporate and administration expenses		(499)	(468)
Total expenses		(14,935)	(15,048)
Profit/(loss) before tax		94,239	110,018
Profit/(loss) for the year		94,239	110,018
Other comprehensive income/(loss):
Other comprehensive income/(loss)		-	-
Total comprehensive income/(loss) for the year		94,239	110,018

		Cents	Cents
Earnings per unit on profit/(loss) attributable to unitholders of the parent entity
Basic earnings per unit	4	9.26	11.34
Diluted earnings per unit	4	9.26	11.34

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

Consolidated Statement of Financial Position

As at 30 June 2018

		2018	2017
	Note	\$'000	\$'000
Current assets
Cash and cash equivalents	10(a)	963	1,246
Receivables	10(b)	3,804	2,064
Other current assets		965	1,085
Total current assets		5,732	4,395
Non-current assets
Investment properties	6	744,150	734,211
Loans with related parties	13	230,376	374,016
Derivative financial instruments	7(c)	179	434
Other		25	-
Total non-current assets		974,730	1,108,661
Total assets		980,462	1,113,056
Current liabilities
Payables	10(c)	11,545	6,059
Provisions	10(d)	15,975	26,237
Derivative financial instruments	7(c)	911	358
Total current liabilities		28,431	32,654
Non-current liabilities
Derivative financial instruments	7(c)	8,633	13,165
Other non-current liabilities		-	2
Total non-current liabilities		8,633	13,167
Total liabilities		37,064	45,821
Net assets		943,398	1,067,235
Equity
Contributed equity	9	1,139,628	1,314,430
Retained profits/(accumulated losses)		(196,230)	(247,195)
Total equity		943,398	1,067,235

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 2018

		Retained
	Contributed	profits/
	equity	(losses)	Reserves	Total equity
	\$'000	\$'000	\$'000	\$'000
Opening balance as at 1 July 2016	1,255,798	(308,625)	-	947,173
Profit/(loss) for the period	-	110,018	-	110,018
Other comprehensive income/(loss) for the year	-	-	-	-
Total comprehensive income for the year	-	110,018	-	110,018
Transactions with owners in their capacity as unitholders:
Issue of additional equity, net of transaction costs	58,632	-	-	58,632
Distributions paid or provided for	-	(48,588)	-	(48,588)
Total transactions with owners in their capacity as owners	58,632	(48,588)	-	10,044
Closing balance as at 30 June 2017	1,314,430	(247,195)	-	1,067,235
Opening balance as at 1 July 2017	1,314,430	(247,195)	-	1,067,235
Profit/(loss) for the period	-	94,239	-	94,239
Other comprehensive income/(loss) for the period	-	-	-	-
Total comprehensive income for the period	-	94,239	-	94,239
Transactions with owners in their capacity as unitholders:
Issue of additional equity, net of transaction costs	475	-	-	475
Capital return1	(175,095)	-	-	(175,095)
Buy-back of contributed equity, net of transaction costs	(182)	-	-	(182)
Distributions paid or provided for	-	(43,274)	-	(43,274)
Total transactions with owners in their capacity as owners	(174,802)	(43,274)	-	(218,076)
Closing balance as at 30 June 2018	1,139,628	(196,230)	-	943,398

1 DXFM as Responsible Entity of DIT made a capital return of 17.21 cents per unit to the existing unitholders of the capital reallocation process that was approved at the Annual General Meeting on 19 September 2017.

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Dexus Industrial Trust | Consolidated Statement of Changed in Equity For the year ended 30 June 2018 dexus.com 10

Consolidated Statement of Cash Flows

For the year ended 30 June 2018

	2018	2017
	\$'000	\$'000
Cash flows from operating activities
Receipts in the course of operations (inclusive of GST)	67,610	66,724
Payments in the course of operations (inclusive of GST)	(21,367)	(22,111)
Interest received	18	16
Interest received/(paid) on derivatives	(4,387)	5,720
Net cash inflow/(outflow) from operating activities	41,874	50,349
Cash flows from investing activities
Proceeds from sale of investment properties	45,200	-
Payments for capital expenditure on investment properties	(15,808)	(8,286)
Net cash inflow/(outflow) from investing activities	29,392	(8,286)
Cash flows from financing activities
Borrowings provided to related parties	(122,101)	(156,269)
Borrowings received from related parties	103,795	102,351
Proceeds from issue of additional equity, net of transactions costs	293	58,632
Distributions paid to unit holders	(53,536)	(47,972)
Net cash inflow/(outflow) from financing activities	(71,549)	(43,258)
Net increase/(decrease) in cash and cash equivalents	(283)	(1,195)
Cash and cash equivalents at the beginning of the year	1,246	2,441
Cash and cash equivalents at the end of the year	963	1,246

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

About This Report

In this section

This section sets out the basis upon which the Trust'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 Trust.

Basis of preparation

The financial statements are general purpose financial reports which have been prepared in accordance with the requirements of the Constitutions of the entities within the Trust, the Corporations Act 2001, AASB's issued by the Australian Accounting Standards Board and International Financial Reporting Standards adopted by the International Accounting Standard Board.

Unless otherwise stated the financial statements have been prepared using consistent accounting policies in line with those of the previous financial year and corresponding interim reporting period.

The financial statements are presented in Australian dollars, with all values rounded in the nearest thousand dollars in accordance with ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, unless otherwise stated.

The financial statements have been prepared on a going concern basis using historical cost conventions, except for investment properties, investment properties within the equity accounted investments, derivative financial instruments, and other financial liabilities which are stated at their fair value.

Dexus 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. Each entity forming part of DXS continues as a separate legal entity in its own right under the Corporations Act 2001 and is therefore required to comply with reporting and disclosure requirements under the Corporations Act 2001 and Australian Accounting Standards.

Working capital deficiency

As at 30 June 2018, the Trust had a net current asset deficiency of \$22.7 million (2017: \$28.3 million). This is primarily due to the provision for distribution of \$16.0 million due to be paid in August 2018.

The capital risk management is not managed at the Trust level, but rather holistically as part of the Group. This is done through a centralised treasury function which ensures that entities within the Group (including DIT) will be able to continue as a going concern.

The Group has in place both external and internal funding arrangements to support the cash flow requirements of the Trust, including undrawn facilities of \$886.6 million [refer to note 13 Interest bearing liabilities in the DXS financial statements].

In the event that the entity requires additional funding to meet current liabilities in the 12 months succeeding the date of this financial report, the Group will make adequate funds available to the Trust.

In determining the basis of preparation of the financial report, the directors of the responsible entity of the Trust, have taken into consideration the unutilised facilities available to the group. As such the Trust is a going concern and the Financial Statements have been prepared on that basis.

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 6	Investment properties	Page 18
Note 7(c)	Derivative financials instruments	Page 26

Principles of consolidation

These consolidated Financial Statements incorporate the assets, liabilities and results of all subsidiaries as at 30 June 2018.

(a) Controlled entities

Subsidiaries are all entities over which the Trust has control. The Trust controls an entity when the Trust 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 Trust. They are deconsolidated from the date that control ceases.

(b) 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 Trust'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.

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.

As at 30 June 2018, the Trust had no investments in foreign operations.

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.

New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2018 reporting period. The Trust's assessment of the impact of these new standards and interpretations is set out below:

AASB 9 Financial Instruments (effective application for the Trust is 1 July 2018)

AASB 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities and introduces new rules for hedge accounting and impairment of financial assets. The following areas have specifically been considered.

Impairment of financial assets – The current impairment assessment model is an 'incurred loss' model requiring the Trust to consider whether or not the financial asset is impaired at the date of performing the assessment. Under AASB 9 this model has changed to an 'expected credit loss' model. Under this model, the Trust is required to consider the historical actual write off rates for a type of financial asset, and forward looking indicators that might impact the recoverability of similar financial assets currently recognised. Management is currently working through the model to quantify the impact but does not expect a material impact on the provision for doubtful debts.

The Trust intends to adopt the new standard from 1 July 2018 and will not restate comparative information.

AASB 15 Revenue from Contracts with Customers (effective application for the Trust is 1 July 2018)

AASB 15 provides new guidance for determining when the Trust should recognise revenue. The new revenue recognition model is based on the principle that revenue is recognised when control of a good or service is transferred to a customer either at a point in time or over time. The model features a contract–based five-step analysis of transactions to determine whether, how much and when revenue is recognised. The Trust's revenue is largely comprised of income under leases (see below), sales of inventory, management fees and development services.

Management has substantially completed its assessment of the impact of transition to the new standard and does not expect there to be an impact on the recognition and measurement of revenue although additional disclosures will be required.

The following specific revenue streams have been assessed:

Income under leases - Within its lease arrangements, the Trust provides certain services to tenants (such as utilities, cleaning, maintenance and certain parking arrangements) which will be accounted for within AASB 15. A portion of the consideration within the lease arrangement will be allocated to revenue for the provision of services. The service revenue will be recognised over time as the services are provided and as such, the timing of recognition of income is not expected to change. Such revenue will, however, be disclosed separately.

The Trust will adopt the new standard from 1 July 2018 using the modified retrospective approach whereby comparatives for the year ended 30 June 2018 will not be restated.

AASB 16 Leases (effective application for the Trust is 1 July 2019)

AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. In 2018, revenue recognised from leases was approximately \$57.7 million (2017: \$60.8 million). The accounting for this lease income is not expected to change with the adoption of the new standard other than the separation of service income from lease income for disclosure purposes as a result of the application of AASB 15 described above.

With respect to leases where the Trust is lessee, all leases, including ground lease, will be required to be recognised on balance sheet with the exception of short term or low value leases. An asset (the right to use the leased item) and a financial liability to pay rentals will be recognised with associated depreciation expense and finance cost. This differs to the current operating lease treatment where lease payments are recognised on a straight-line basis over the lease term.

The Trust intends to apply the standard from 1 July 2019.

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 Trust.

The notes are organised into the following sections:

Group performance	Property portfolio assets	Capital and financial risk management and working capital	Other disclosures
1. Operating segments	6. Investment properties	7. Capital and financial risk management	11. Audit, taxation and transaction service fees
2. Property revenue and expenses		8. Commitments and contingencies	12. Cash flow information
3. Finance costs		9. Contributed equity	13. Related parties
4. Earnings per unit		10. Working capital	14. Parent entity disclosures
5. Distributions paid and payable			15. Subsequent events

Trust performance

In this section

This section explains the results and performance of the Trust.

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 Trust, 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.

Note 1 Operating segments

Description of segments

The Group's operating segments have been identified based on the sectors analysed within the management reports reviewed in order to monitor performance across the Group and to appropriately allocate resources.

The operating segments within DXS are reviewed on a consolidated basis and are not monitored at an individual trust level.

Disclosures concerning DXS's operating segments are presented in the Dexus Financial Report.

Note 2 Property revenue and expenses

The Trust's main revenue stream is property rental revenue and is derived from holding properties as investment properties and earning rental yields over time. 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. 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.

Property revenue is recognised as the service is delivered, in accordance with the terms of the relevant contracts.

	2018	2017
	\$'000	\$'000
Rent and recoverable outgoings	57,686	60,756
Incentive amortisation	(10,192)	(6,575)
Other revenue	5,354	3,667
Total property revenue	52,848	57,848

Property expenses of \$11.5 million (2017: \$12.4 million) includes rates, taxes and other property outgoings incurred in relation to investment properties.

Note 3 Finance costs

Borrowing costs include interest, amortisation or other 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.

A qualifying asset is an asset under development which takes a substantial period of time, where the works being carried out to bring it to its intended use or sale are expected to exceed 12 months in duration. Finance costs incurred for the acquisition and construction of a qualifying asset are capitalised to the cost of the asset for the period of time that is required to complete the asset. 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 an appropriate capitalisation rate.

Note 3 Finance costs (continued)

	2018 \$'000	2017 \$'000
Interest paid/payable	-	80
Net fair value (gain)/loss of interest rate swaps	663	-
Amount capitalised	(89)	-
Other finance costs	219	60
Total finance costs	793	140

The average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation if 5.75%.

Note 4 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.

a) Net profit used in calculating basic and diluted earnings per unit

	2018	2017
	\$'000	\$'000
Profit attributable to unitholders of the parent entity	94,239	109,849

b) Weighted average number of units used as a denominator

	2018	2017
	No. of units	No. of units
Weighted average number of units outstanding used in calculation of basic
and diluted earnings per unit	1,017,299,246	968,484,893

Note 5 Distributions paid and payable

Distributions are recognised when declared.

a) Distribution to security holders

	2018	2017
	\$'000	\$'000
31 December (paid 28 February 2018)	27,299	22,351
30 June (payable 30 August 2018)	15,975	26,237
Total distribution to unitholders	43,274	48,588

b) Distribution rate

	2018	2017
	Cents per unit	Cents per unit
31 December (paid 28 February 2018)	2.68	2.31
30 June (payable 30 August 2018)	1.57	2.58
Total distributions	4.25	4.89

Property portfolio assets

Note 6 Investment properties

The Trust'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 carried at fair value.

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.

a) Reconciliation

	Office	Industrial	Development	2018	2017
	\$'000	\$'000	\$'000	\$'000	\$'000
Opening balance at the beginning of the year	196,000	528,007	10,204	734,211	674,321
Additions	10,423	6,160	420	17,003	8,089
Lease incentives	2,421	4,473	-	6,894	4,811
Amortisation of lease incentives	(4,496)	(5,696)	-	(10,192)	(6,575)
Rent straightlining	(1,267)	(531)	-	(1,798)	(121)
Disposals	-	(45,200)	-	(45,200)	-
Net fair value gain/(loss) of investment properties	19,919	23,577	(264)	43,232	53,686
Closing balance at the end of the year	223,000	510,790	10,360	744,150	734,211

b) Valuations 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 except properties under development and co-owned properties. Independent valuations may be undertaken earlier where the Responsible Entity believes there is potential for a change in the fair value of the property being the greater of 5% of the asset value, or \$5.0 million. At 30 June 2018, all investment properties were independently externally valued.

The Trust's investment properties are required to be internally valued at least every six months at each reporting period (interim and full-year) unless they have been independently externally valued. Internal valuations are compared to the carrying value of investment properties at the reporting date. Where the Directors determine that 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 Trust'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.

Note 6 Investment properties (continued)

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.

	Fair value			Range of unobservable inputs
Class of property	hierarchy	Inputs used to measure fair value	2018	2017
Office1		Level 3 Adopted capitalisation rate	6.25%	6.50%
		Adopted discount rate	7.00%	7.50%
		Adopted terminal yield	6.50%	6.75%
		Current net market rental (per sqm)	\$429	\$388
Industrial		Level 3 Adopted capitalisation rate	5.75% - 11.00%	6.25% - 11.00%
		Adopted discount rate	7.00% - 11.00%	7.25% - 11.25%
		Adopted terminal yield	6.00% - 11.00%	6.50% - 11.25%
		Current net market rental (per sqm)	\$38 - \$338	\$38 - \$335
Development		Land rate (per sqm)	\$425	\$415

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.
• 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 Trust's investment properties as shown below.

Significant inputs	Fair value measurement sensitivity to significant increase in input	Fair value measurement sensitivity to significant decrease in input
Adopted capitalisation rate
Adopted discount rate	Decrease	Increase
Adopted terminal yield
Net market rental (per sqm)
Land rate (per sqm)	Increase	Decrease

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.

Property portfolio assets (continued)

Note 6 Investment properties (continued)

d) Sensitivity information (continued)

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 cash flow 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.

Capital and financial risk management and working capital

In this section

The Trust's overall risk management program focuses on reducing volatility from impacts of movements in financial markets and seeks to minimise potential adverse effects on the financial performance of the Trust.

Note 7 Capital and financial risk management outlines how the Trust 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 Trust.

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 security holders (equity) in order to finance the Trust's activities both now and in the future. This capital structure is detailed in the following notes:

• Debt: Commitments and contingencies in note 8;
• Equity: Contributed equity in note 9.

Note 10 provides a breakdown of the working capital balances held in the Consolidated Statement of Financial Position.

Note 7 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 Board of the Responsible Entity has appointed a Group Management Committee responsible for achieving Dexus's goals and objectives, including the prudent financial and risk management of the Group. A Capital Markets Committee has been established to advise the Group Management 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 DXS 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 Trust is not rated by ratings agencies, however DXS has been rated A- by Standard and Poor's (S&P) and A3 by Moody's. Gearing levels and bank debt covenants are managed holistically as part of the DXS Group.

DXFM, the Responsible Entity for the Trust, 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.

b) Financial risk management

The Trust'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 Trust. The Trust'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 Trust's exposure to financial risks namely:

• interest rate risk;
• liquidity risk; and
• credit risk.

The Trust uses derivatives to reduce the Trust'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 Trust may use to hedge its risks include:

• interest rate swaps;
• interest rate options.

The Trust does not trade in derivative instruments for speculative purposes. The Trust 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 Trust utilises. Non-derivative interest bearing financial instruments are predominantly short term liquid assets and long term debt issued at fixed rates which expose the Trust to fair value interest rate risk as the Trust may pay higher interest costs than if it were at variable rates. The Trust's borrowings which have a variable interest rate give rise to cash flow interest rate risk due to movements in variable interest rates.

The Trust'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 Trust primarily enters into interest rate derivatives to manage the associated interest rate risk. The derivative contracts are recorded at fair value in the Statement of Financial Position, being the market value as quoted in an active market.

Interest rate derivatives require settlement of net interest receivable or payable generally 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 derivative contracts are settled on a net basis.

b) Financial risk management (continued)

i) Market risk (continued)

Interest rate risk (continued)
	June 2019	June 2020	June 2021	June 2022	June 2023
	\$'000	\$'000	\$'000	\$'000	\$'000
A\$ hedged	120,000	40,000	-	-	-
A\$ hedged rate (%)	6.04%	6.04%	-	-	-

Sensitivity analysis on interest expense

The table below shows the impact on the Trust's net interest expense of a 50 basis point movement in market interest rates. The sensitivity on cash flow arises due to the impact that a change in interest rates will have on the Trust'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.

		2018	2017
		(+/-) \$'000	(+/-) \$'000
+/- 0.50% (50 basis points)	A\$	1,752	1,870
Total A\$ equivalent		1,752	1,870

The movement in interest expense is proportional to the movement in interest rates.

Sensitivity analysis on fair value of interest rate derivatives

The sensitivity analysis on interest rate derivatives below shows the effect on net profit or loss of changes in the fair value of interest rate derivatives for a 50 basis point movement 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 derivatives.

The fair value of interest rate derivatives is calculated as the present value of estimated future cash flows on the instruments. Although interest rate derivatives are transacted for the purpose of providing the Trust with an economic hedge, the Trust 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.

		2018	2017
		(+/-) \$'000	(+/-) \$'000
+/- 0.50% (50 basis points)	A\$	770	1,255
Total A\$ equivalent		770	1,255

ii) Liquidity risk

Liquidity risk is associated with ensuring that there are sufficient funds available to meet the Trust's financial commitments as and when they fall due and planning for any unforeseen events which may curtail cash flows. The Trust 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 Trust cash requirements over the next 1-24 month period. The Trust 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 Trust:

• 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 Trust's interest-bearing liabilities and derivative financial instruments is shown in the table below. The amounts in the table represent undiscounted cash flows.

	2018					2017
	Within one year \$'000	Between one and two years \$'000	Between two and five years \$'000	After five years \$'000	Within one year \$'000	Between one and two years \$'000	Between two \$'000	and five years After five years \$'000
Payables	(11,545)				(6,059)
Interest bearing liabilities & interest Loans receivable/(payable) with related parties and interest	9,843	240,300	-	-	15,746	16,517	390,899
Total interest bearing liabilities & interest1	9,843	240,300	-	-	15,746	16,517	390,899	-
Derivative financial instruments Derivative liabilities	(6,244)	(1,373)	-	-	(4,909)	(5,925)	(1,232)	-
Total net derivative financial instruments2	(6,244)	(1,373)	-	-	(4,909)	(5,925)	(1,232)	-

1 Includes estimated interest and fees.

2 For interest rate swaps, only the net interest cash flows (not the notional principal) are included. Refer to note 7(c) for fair value of derivatives Refer to note 8(b) for financial guarantees.

iii) Credit risk

The Trust is exposed to credit risk on cash balances and on derivative financial instruments with financial institutions. The Trust 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 Trust's policy requirements.

Financial instrument transactions are spread among a number of approved financial institutions within specified credit limits to minimise the Trust's exposure to any one counterparty. As a result, there is no significant concentration of credit risk for financial instruments. The maximum exposure to credit risk at 30 June 2018 is the carrying amounts of financial assets recognised on the Consolidated Statement of Financial Position.

The Trust is exposed to credit risk on trade receivable balances. The Trust has a policy to continuously assess and monitor the credit quality of trade debtors on an ongoing basis. Given the historical profile and exposure of the trade receivables, it has been determined that no significant concentrations of credit risk exists for trade receivables balances. The maximum exposure to credit risk at 30 June 2018 is the carrying amounts of the trade receivables recognised on the Statement of Financial Position.

iv) Fair value

As at 30 June 2018 and 30 June 2017, the carrying amounts of financial assets and liabilities are held at fair value. The Trust 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, excluding cash, 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.

Key assumptions: fair value of derivatives

The fair value of derivatives has been determined based on observable market inputs (interest rates) and applying a credit or debit value adjustment based on the current credit worthiness of counterparties and the Trust.

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. No financial assets and liabilities are currently held under netting arrangements.

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 Trust does not presently have a legally enforceable right of set-off, these amounts have not been offset in the Statement of Financial Position.

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 regularly reviews the Trust's exposures and updates its treasury policies and procedures. The Trust does not trade in derivative instruments for speculative purposes.

	2018	2017
	\$'000	\$'000
Non-current assets
Interest rate swap contracts	179	434
Total non-current assets - derivative financial instruments	179	434
Current liabilities
Interest rate swap contracts Total current liabilities - derivative financial instruments	911 911	358 358
Non-current liabilities Interest rate swap contracts	8,633	13,165
Total non-current liabilities - derivative financial instruments	8,633	13,165
Net derivative financial instruments	(9,365)	(13,089)

Note 8 Commitments and contingencies

a) Commitments

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:

	2018	2017
	\$'000	\$'000
Investment properties	12,640	2,166
Total capital commitments	12,640	2,166

Note 8 Commitments and contingencies (continued)

a) Commitments (continued)

Lease receivable commitments

The future minimum lease payments receivable by the Trust are:

	2018	2017
	\$'000	\$'000
Within one year	49,194	40,439
Later than one year but not later than five years	192,032	133,890
Later than five years	39,645	48,675
Total lease receivable commitments	280,871	223,004

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.

b) Contingencies

The Trust, together with DXO, DOT and DDF, is a guarantor of A\$4,358.9 million of interest bearing liabilities (refer to note 13 of the Dexus Financial Report). 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 above guarantees are issued in respect of the Trust and do not constitute an additional liability to those already existing in interest bearing liabilities on the Consolidated Statement of Financial Position.

The Directors of the Responsible Entity are not aware of any other contingent liabilities in relation to the Trust, other than those disclosed in the Financial Statements, which should be brought to the attention of unit holders as at the date of completion of this report.

Note 9 Contributed equity

Number of units on issue

	2018	2017
	No. of units	No. of units
Opening balance at the beginning of the year	1,016,967,300	967,947,692
Issue of additional equity	437,242	49,019,608
Buy-back of contributed equity	(207,665)	-
Closing balance at the end of the year	1,017,196,877	1,016,967,300

Each stapled security ranks equally with all other stapled securities for the purposes of distributions and on termination of the Trust.

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.

Capital and financial risk management and working capital (continued)

Note 10 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 Trust will not be able to collect all amounts due according to the original terms of the receivables.

	2018	2017
	\$'000	\$'000
Rent receivable	1,568	735
Total rental receivables	1,568	735
Interest receivable	966	1,045
Other receivables	1,270	284
Total other receivables	2,236	1,329
Total receivables	3,804	2,064

c) Payables

	2018	2017
	\$'000	\$'000
Trade creditors	836	897
Accruals	1,386	1,384
Accrued capital expenditure	6,113	2,412
Prepaid income	2,820	1,043
Management fee payable	186	184
Other payables	204	139
Total payables	11,545	6,059

Note 10 Working capital (continued)

d) 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 Trust 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.

	2018	2017
	\$'000	\$'000
Provision for distribution	15,975	26,237
Total current provisions	15,975	26,237

Movements in each class of provision during the financial year, other than employee benefits, are set out below:

	2018 \$'000	2017 \$'000
Provision for distribution
Opening balance at the beginning of the year	26,237	25,621
Additional provisions	43,274	48,588
Payment of distributions	(53,536)	(47,972)
Closing balance at the end of the year	15,975	26,237

A provision for distribution has been raised for the period ended 30 June 2018. This distribution is to be paid on 30 August 2018.

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 Trust.

Note 11 Audit, taxation and transaction service fees

During the year, the Auditor and its related practices earned the following remuneration:

2018	2017
\$	\$
Audit fees
PwC Australia - audit and review of Financial Statements 266,264	269,280
PwC fees paid in relation to outgoings audits 8,500	6,426
PwC Australia - regulatory audit and compliance services 9,078	9,180
Audit fees paid to PwC 283,842	284,886

Note 12 Cash flow information

a) Reconciliation of cash flows from operating activities

Reconciliation of net profit after income tax to net cash inflows from operating activities:

	2018	2017
	\$'000	\$'000
Net profit/(loss) for the year	94,239	110,018
Capitalised interest	(89)	-
Net fair value (gain)/loss of investment properties	(43,232)	(53,686)
Net fair value (gain)/loss of interest rate swaps	-	(675)
Net (gain)/loss on sale of investment properties	(6)	-
Net foreign exchange (gain)/loss	-	(1,623)
Provision for doubtful debts	-	(296)
Change in operating assets and liabilities
(Increase)/decrease in receivables	(1,819)	1,195
(Increase)/decrease in other current assets	120	(14)
(Increase)/decrease in derivative financial instruments	-	8,675
(Increase)/decrease in other non-current assets	(5,144)	(7,641)
Increase/(decrease) in payables	1,786	(2,758)
Increase/(decrease) in current liabilities	553	(17)
Increase/(decrease) in other non-current liabilities	(4,534)	(2,828)
Net cash inflow/(outflow) from operating activities	41,874	50,350

Note 13 Related parties

Responsible Entity

DXFM is the Responsibility Entity of the Trust.

Management Fees

Under the terms of the Trust's Constitutions, the Responsible Entity is entitled to receive fees in relation to the management of the Trust. DXFM's parent entity, DXH, is entitled to be reimbursed for administration expenses incurred on behalf of the Trust. Dexus Property Services Pty Limited (DXPS), a wholly owned subsidiary of DXH, is entitled to property management fees from the Trust.

Related party transactions

Responsible Entity fees in relation to the Trust assets are on a cost recovery basis.

Transactions with related parties

There were a number of transactions and balances between the Trust and the Responsible Entity and its related entities, as detailed below:

2018	2017
\$	\$
2,126,429	2,066,916
1,338,909	1,404,971
186,038	183,553
125,235	109,874
29,746	7,631

Entities within DXS

Aggregate amounts included in the determination of profit that resulted from transactions with each class of other related parties:

	2018	2017
	\$	\$
Interest revenue	13,087,776	11,748,744
Interest bearing loans advanced from entities within DXS	278,708,594	102,350,486
Interest bearing loans advanced to entities within DXS	135,068,302	156,268,846

Loans with related parties

Non-current loans with related parties are interest bearing loans with Dexus Finance Pty Limited (DXF). These loan balances eliminate on consolidation within DXS.

Key management personnel compensation

	2018 \$'000	2017 \$'000
Compensation
Short-term employee benefits	9,275	8,967
Post employment benefits	350	717
Security-based payments	3,725	3,011
Total key management personnel compensation	13,350	12,695

Note 14 Parent entity disclosures

The financial information for the parent entity of Dexus Industrial 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:

	2018	2017
	\$'000	\$'000
Total current assets	3,344	4,288
Total assets	966,610	1,058,399
Total current liabilities	20,906	37,909
Total liabilities	29,538	51,076
Equity
Contributed equity	1,139,628	1,314,430
Reserves	-	-
Retained profits	(202,556)	(307,106)
Total equity	937,072	1,007,324
Net profit/(loss) for the year	147,824	52,398
Total comprehensive income/(loss) for the year	147,824	52,398

b) Guarantees entered into by the parent entity

Refer to note 8 for details of guarantees entered into by the parent entity.

c) Contingent liabilities

The parent entity had no contingent liabilities as at 30 June 2018 (2017: 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:

	2018	2017
	\$'000	\$'000
Investment properties	467	203
Total capital commitments	467	203

Note 15 Subsequent events

Since the end of the year, the Directors are not aware of any matter or circumstance not otherwise dealt with in their Directors' Report or the Financial Statements that has significantly or may significantly affect the operations of the Trust, the results of those operations, or state of the Trust's affairs in future financial periods.

Indep endent quditor's r ep ort

To the stapled security holders of Dexus Industrial Trust

Report on the audit of thefinancial report

Our optnion

In our opinion:

The accompanylng financial report of Dexus Industrial Trust (the Registered Scheme) and its controlled entities (together the Group) is in accordance with the Corporations Act 2oor, including:

• (a) giving a true and fair view of the Group's financial position as at 30 June zorS and of its financial performance for the year then ended
• (b) complying with Australian Accounting Standards and the Corporations Regulations zoot.

I'Vhat toe hanse qudited.

The Group financial report comprises:

• o the Consolidated Statement of Financial Position as at 30 June zor8
• r the Consolidated Statement of Comprehensive Income for the year then ended
• . the Consolidated Statement of Changes in Equity for the year then ended
• o the Consolidated Statement of Cash Flows for the year then ended
• o the Notes to the Financial Statements, which include significant accounting policies
• o the Directors' Declaration.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Audrto r's responsibilities for the audit of the financial report section ofour report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act eoot and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES rro Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

PricewaterhouseCoopers, ABN gz 78o 4Sg 757 One International Towers Sydney, Watermans Quay, Barangqroo, GPO BOX z6So, SIDNEY NSW zoot T: +6t z 8266 oooo, F: +6t z 8266 9999,wwwpwucom.au Leuel tt, IPSQ, t69 Macquarie Street, Parramatta NSW zt5o, PO Box ttg5 Parramqtta NSW ztz4 T: +6t z 9699 2476, F: +6t z 8266 9999,www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

Our audit approach

An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis ofthe financial report.

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates.

For the purpose ofour audit we used overall materiality of \$3.o million, which represents approximately S% of the Group's adjusted profit before tax (Funds From Operations or FFO).

• We applied this threshold, together with qualitative considerations, to determine the scope ofour audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.
• We chose FFO because, in our view, it is the key perforrnance measure of the Group. An explanation of what is included in FFO is outlined in Note r, Operating segments of the Dexus Annual Report. a
• We utlised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable profi t related thresholds.

The Group is a consolidated entity with operations in Australia. The scope ofour audit included the parent entity Dexus Industrial Trust and its controlled entities.

Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events.

a

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• Amongst other relevant topics, we communicated the following key audit matter to the Board Audit Committee:
• Valuation of investment properties
• This is further described in the Key audit matters section of our report.

Key audit mltters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context.

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Vc.luc,tion of inu esftnent properties (Refer to Note 6)

The Group's investment property portfolio comprises \$Z++l million (zotzl gzg+.2 million) of industrial properties directly held in Australia.

Investment properties are carried at fair value at reporting date using the Group's policy as described in Note 6. The valuation of investment properties is dependent on a number ofassumptions and inputs including, tenant information, property age and location, expected future rental profiles, and prevailing market conditions. Amongst others, the following assumptions are key in establishing fair value:

• . The capitalisation rate
• . The adopted discount rate.

We considered the valuation of investment properties to be a key audit matter due to the:

• o Financial significance of investment properties in the Consolidated Statement of Financial Position.
• o Potential for changes in the fair value of investment properties to have a significant effect on the Group's comprehensive income.
• o Inherently subjective nature of investment property valuations arising from the use of assumptions in the valuation methodology.
• o Sensitivity ofvaluations to key input assumptions, including capitalisation rates, and discount rates.

To assess properties we performed the following procedures amongst others

• We considered the valuation methodology adopted bythe Group and found it to be consistent with commonly accepted valuation approaches used for investment properties in the industry and the Group's valuation policy.
• We obtained recent independent property market reports to develop an understanding ofthe prevailing market conditions in which the Group invests. We leveraged this knowledge to form independent expectations for movements in investment property values and underlying key assumptions such as capitalisation rates and discount rates. a
• a We compared the capitalisation rates and discount rates used by the Group to ranges we determined were reasonable based on benchmark market data. Where capitalisation rates, discount rates and/or movements in individual property valuations fell outside of our anticipated ranges, we performed the following procedures, amongst others:
• Met with the Group's Senior Valuation Manager and discussed the specifics ofthe selected individual properties including, amongst other things, any new leases entered into during the year, lease expiries, capital expenditure and vacancy rates.
• Agreed significant changes in inputs to supporting documentation such as new lease agreements.

We found that typicallythe variances related to the relative age, or size/location ofthe individual property in comparison to the market. In the context of the specific properties identified, we found the reasons for variances appropriate.

As the Group engaged external experts to determine the fair value of investment properties, we considered the independence, experience and competency of the Group's independent experts as well as the results oftheir procedures. a

Other information

The Directors of the responsible entity of the Group, Dexus Funds Management Limited (the Directors), are responsible for the other information. The other information comprises the information included in the financial report for the year ended 30 June zor8, including the Directors' Report, but does not include the financial statements and related note disclosures and our auditor's report thereon.

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the financial report

The Directors 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 zoot and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the Directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level ofassurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions ofusers taken on the basis ofthe financial report.

A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at:

http://www.auasb.gov.au/auditors_responsibilities/arr.pdf. This description forms part of our auditor's report.

PricewaterhouseCoopers

Matthew Lunn Partner

Sydney 4 August 2018

Dexus Office Trust Financial Report 30 June 2018

	Directors' Report 1
	Auditor's Independence Declaration 7
	Consolidated Statement of Comprehensive Income 8
	Consolidated Statement of Financial Position 9
	Consolidated Statement of Changes in Equity 10
	Consolidated Statement of Cash Flows 11
	About This Report 12
	Notes to the Financial Statements 15
	Trust performance 16
Note 1	Operating segments 16
Note 2	Property revenue and expenses 16
Note 3	Finance costs 17
Note 4	Earnings per unit 17
Note 5	Distributions paid and payable 18
	Property portfolio assets 19
Note 6	Investment properties 19
Note 7	Investments accounted for using the equity method 22
Note 8	Non-current assets classified as held for sale 24
	Capital and financial risk management and working capital 25
Note 9	Capital and financial risk management 25
Note 10	Commitments and contingencies 31
Note 11	Loans with related parties 31
Note 12	Contributed equity 32
Note 13	Working capital 32
	Other disclosures 34
Note 14	Audit, taxation and transaction service fees 34
Note 15	Cash flow information 34
Note 16	Related parties 35
Note 17	Parent entity disclosures 36
Note 18	Subsequent events 37
	Directors' Declaration 38
	Independent Auditor's Report 39

John C Conde, AO, BSc, BE (Hons), MBA, FAICD 29 April 2009 Tonianne Dwyer, BJuris (Hons), LLB (Hons) 24 August 2011 Mark Ford, Dip. Tech (Commerce), CA, FAICD 1 November 2016

unless otherwise stated:

Directors

Directors' Report

form the Dexus (DXS or the Group) stapled security.

Directors and Secretaries

Peter B St George, CA(SA), MBA 29 April 2009

Company Secretaries

The names and details of the Company Secretaries of DXFM as at 30 June 2018 are as follows:

W Richard Sheppard, BEc (Hons), FAICD 1 January 2012

Penny Bingham-Hall, BA (Industrial Design), FAICD, SF (Fin) 10 June 2014

The Hon. Nicola L Roxon, BA/LLB (Hons), GAICD 1 September 2017 Darren J Steinberg, BEc, FRICS, FAPI, FAICD 1 March 2012

Brett D Cameron LLB/BA (Science and Technology), GAICD, FGIA

Appointed: 31 October 2014

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

The Directors of Dexus Funds Management Limited (DXFM) as Responsible Entity of Dexus Office Trust (DOT or the Trust) present their Directors' Report together with the consolidated Financial Statements for the year ended 30 June

The Trust together with Dexus Diversified Trust (DDF), Dexus Industrial Trust (DIT) and Dexus Operations Trust (DXO)

The following persons were Directors of DXFM at all times during the year and to the date of this Directors' Report,

Directors Appointed Resigned

Elizabeth A Alexander, AM, BComm, FCA, FAICD, FCPA 1 January 2005 24 October 2017

1. The consolidated Financial Statements represents Dexus Office Trust and its consolidated entities.

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 22 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 and a Fellow of the Governance Institute of Australia.

Rachel Caralis LLB/B Com (Acc), M Com (Property Development), Grad Dip (Applied Corporate Governance) AGIA, AAPI

Appointed: 17 February 2016

Rachel is Senior Legal Counsel and Company Secretary of Dexus.

Rachel joined Dexus in 2008 after five years at King and Wood Mallesons where she worked in the real estate and projects team. Rachel has 15 years' experience as in-house counsel and in private practice working on real estate and corporate transactions, funds management and corporate finance for wholesale and listed clients.

Rachel graduated from the University of Canberra with a Bachelor of Laws and Bachelor of Commerce (Accounting), has completed a Masters of Commerce (Property Development) at the University of Western Sydney and a Graduate Diploma in Applied Corporate Governance at the Governance Institute of Australia. Rachel is a member of the Law Society of New South Wales, an associate of the Australian Property Institute and an associate of the Governance Institute of Australia.

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 13 times during the year. Ten Board meetings were main meetings and three meetings were held to consider specific business.

	Main meetings held	Main meetings attended	Specific meetings held	Specific meetings attended
W Richard Sheppard	10	10	3	3
Elizabeth A Alexander, AM 1	4	4	-	-
Penny Bingham-Hall	10	10	3	3
John C Conde, AO	10	10	3	3
Tonianne Dwyer	10	10	3	3
Mark Ford	10	9	3	3
The Hon. Nicola L Roxon 2	8	8	3	3
Darren J Steinberg	10	10	3	3
Peter B St George	10	10	3	3

1 Ceased directorship 24 October 2017.

2 Commenced directorship on 1 September 2017.

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.

The table below shows non-executive Directors' attendances at Board Committee meetings of which they were a member during the year ended 30 June 2018.

	Board Audit Board Risk Committee Committee		Board Nomination Committee		Board People and Remuneration Committee
	Held	Attended	Held	Attended	Held	Attended	Held	Attended
W Richard Sheppard	-	-	-	-	4	4	5	5
Elizabeth A Alexander,AM1	1	1	-	-	-	-	-	-
Penny Bingham-Hall	-	-	4	4	4	4	5	5
John C Conde, AO	3	3	-	-	4	4	1	1
Tonianne Dwyer	4	4	4	4	-	-	-	-
The Hon. Nicola L Roxon2	-	-	3	3	-	-	4	4
Mark Ford	4	4	4	4	-	-	-	-
Peter B St George	4	4	4	4	-	-	-	-

1 Ceased directorship 24 October 2017.

2 Commenced directorship on 1 September 2017.

Elizabeth A Alexander and Tonianne Dwyer were also Directors of Dexus Wholesale Property Limited (DWPL) and attended DWPL Board meetings during the year ended 30 June 2018. John Conde joined as a Director of Dexus Wholesale Property Limited (DWPL) on 25 October 2017.

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
W Richard Sheppard	70,090
Penny Bingham-Hall	16,534
John C Conde, AO	16,667
Tonianne Dwyer	16,667
Mark Ford	1,667
The Hon. Nicola L Roxon	Nil
Darren J Steinberg1	1,219,571
Peter B St George	17,333

1 Includes interests held directly and through performance rights.

Operating and financial review

The relevant financial information for the trust for the year ended 30 June 2018 is as follows:

• profit attributable to unitholders was \$1,069.8 million (2017: \$858.2 million)
• total assets were \$9,090.8 million (2017: \$7,911.7 million)
• net assets were \$5,986.4 million (2017: \$4,851.0 million)

A review of the results, financial position and operations of the Group, of which the Trust forms part thereof, is set out in the Operating and Financial Review of the Dexus Financial Report and forms part of this Directors' Report.

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
W Richard Sheppard	Star Entertainment Group	21 November 2012
Penny Bingham-Hall	BlueScope Steel Limited	29 March 2011
	Fortescue Metals Group Ltd	16 November 2016
John C Conde, AO	Whitehaven Coal Limited	3 May 2007
	Cooper Energy Limited	25 February 2013
Tonianne Dwyer	Carndo Limited3	25 June 2012
	Metcash Limited	24 June 2014
	ALS Limited	1 July 2016
	OZ Minerals Limited	21 March 2017
The Hon. Nicola L Roxon	Lifestyle Communities Limited	1 September 2017
Peter B St George	First Quantum Minerals Limited2	20 October 2003
Mark Ford	Kiwi Property Group Limited2	16 May 2011

1 Listed for trading on the Toronto Stock Exchange in Canada.

2 Listed for trading on the New Zealand Stock Exchange since 22 December 2014.

3 Directorship ceased 27 January 2016.

Principal activities

During the year the principal activity of the Trust was to own, manage and develop high quality real estate assets for future use as investment properties. There were no significant changes in the nature of the Trust's activities during the year.

Total value of Trust assets

The total value of the assets of the Trust as at 30 June 2018 was \$9,090.5 million (2017: \$7,911.7 million). Details of the basis of this valuation are outlined in the Notes to the Financial Statements and form part of this Directors' Report.

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 Trust, other than the information already outlined in this Directors' Report or the Financial Statements accompanying this Directors' Report would be unreasonably prejudicial to the Trust.

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 Trust, the results of those operations, or the state of the Trust's affairs in future financial years.

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 Trust, the results of those operations, or the state of the Trust's affairs in future financial years.

Distributions

Distributions paid or payable by the Trust for the year ended 30 June 2018 are outlined in note 5 of the Notes to the Financial Statements and form part of this Director's report.

DXFM fees

Details of fees paid or payable by the Trust for the year ended 30 June 2018 are outlined in note 16 of the Notes to the Financial Statements and form part of this Directors' Report.

Units on Issue

The movement in units on issue in the Trust during the year and the number of units on issue as at 30 June 2018 are detailed in note 12 of the Notes to the Financial Statements and form part of this Directors' Report.

Environmental regulation

DXS senior management, through its Board Risk Committee, oversees 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.

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 Trust pursuant to the Dexus Specific Terms of Business agreed for all engagements with PwC, to the extent that the Trust 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.

Directors' Report (continued)

Audit

Auditor

PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.

Non-audit services

The Trust may decide to employ the Auditor on assignments, in addition to its 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 14 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:

• All non-audit services have been reviewed by the Board Audit Committee to ensure that they do not impact the impartiality and objectivity of the auditor
• None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants.

The above Directors' statements are in accordance with the advice received from the Board Audit Committee.

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 7 and forms part of this Directors' Report.

Corporate governance

DXFM's Corporate Governance Statement is available at: www.dexus.com/corporategovernance

Rounding of amounts and currency

As the Trust is an entity of the kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, the Directors have chosen to round amounts in this Directors' Report and the accompanying Financial Report to the nearest tenth of a million dollars, unless otherwise indicated. The Trust is an entity to which the Instrument applies. All figures in this Directors' Report and the Financial Statements, except where otherwise stated, are expressed in Australian dollars.

Auditor's Independence Declar ation

As lead auditor for the audit of Dexus Office Trust for the year ended 3o June zor8, I declare that to the best of my knowledge and belief, there have been:

• (a) no contraventions of the auditor independence requirements of the Corporations Act 2ool in relation to the audit; and
• (b) no contraventions ofanyapplicable code ofprofessional conductin relation to the audit.

This declaration is in respect of Dexus Office Trust and the entities it controlled during the period.

Matthew Lunn Partner PricewaterhouseCoopers

Sydney 4 August ²⁰¹⁸

PricewqtsrhouseCoopers, ABN g,z 78o 4SS 757 One InternationalTowers Sydney,Watermans Quay, Barangaroo, GPO BOX z6So, SYDNEY NSW zoot T: +6t z 8266 oooo, F: +6t z 8266 9g99,wwwpwocom.au l,euel u, IPSQ, t69 Macquarie Street, Parramatta NSW zt5o, PO Box ttgg Parramatta NSW ztz4 T: +6t 2 9659 2476, F: +6t z 8266 9gg9,ww1D.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2018

		2018	2017
	Note	\$m	\$m
Revenue from ordinary activities
Property revenue	2	294.8	278.9
Interest revenue		0.3	0.2
Total revenue from ordinary activities		295.1	279.1
Net fair value gain of investment properties		487.3	314.7
Share of net profit of investments accounted for using the equity method	7	516.3	458.7
Net gain on sale of investment properties		1.9	23.4
Net fair value gain of derivatives		6.6	-
Other income		2.4	-
Total income		1,309.6	1,075.9
Expenses
Property expenses	2	(78.9)	(78.8)
Management fee expense		(14.6)	(12.6)
Finance costs	3	(144.9)	(125.6)
Management operations, corporate and administration expenses		(1.4)	(0.7)
Total expenses		(239.8)	(217.7)
Profit/(loss) before tax		1,069.8	858.2
Income tax expense		-	-
Profit/(loss) for the year		1,069.8	858.2
Other comprehensive income/(loss):
Other comprehensive income/(loss)		-	-
Total comprehensive income/(loss) for the year		1,069.8	858.2
		Cents	Cents
Earnings per unit on profit/(loss) attributable to unitholders of the parent entity
Basic earnings per unit	4	105.16	88.61
Diluted earnings per unit	4	105.16	88.61

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

Consolidated Statement of Financial Position

As at 30 June 2018

		2018	2017
	Note	\$m	\$m
Current assets
Cash and cash equivalents	13(a)	7.2	5.8
Receivables	13(b)	26.9	36.9
Non-current assets classified as held for sale	8	-	283.7
Derivative financial instruments	9(c)	6.7	-
Other	13(c)	17.1	3.4
Total current assets		57.9	329.8
Non-current assets
Investment properties	6	4,810.5	3,883.2
Investments accounted for using the equity method	7	4,218.5	3,690.5
Derivative financial instruments	9(c)	2.7	6.3
Other		1.2	1.9
Total non-current assets		9,032.9	7,581.9
Total assets		9,090.8	7,911.7
Current liabilities
Payables	13(d)	70.0	68.3
Provisions	13(e)	149.9	119.6
Derivative financial instruments Loans with related parties	9(c) 11	4.5 -	5.3 149.0
Total current liabilities		224.4	342.2
Non-current liabilities
Loans with related parties		2,867.0	2,696.6
Derivative financial instruments	9(c)	12.9	21.8
Other		0.1	0.1
Total non-current liabilities		2,880.0	2,718.5
Total liabilities		3,104.4	3,060.7
Net assets		5,986.4	4,851.0
Equity
Contributed equity	12	3,050.8	2,699.7
Retained profits		2,935.6	2,151.3
Parent entity unitholders' interest		5,986.4	4,851.0
Total equity		5,986.4	4,851.0

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 2018

			Retained
		Contributed	profits/
	Note	equity	(losses)	Reserves	Total equity
Opening balance as at 1 July 2016		\$m 2,432.4	\$m 1,534.3	\$m -	\$m 3,966.7
Profit/(loss) for the year		-	858.2	-	- 858.2
Other comprehensive income/(loss) for the year		-	-	-	-
Total comprehensive income for the year		-	858.2	-	858.2
Transactions with owners in their capacity as unitholders:
Issue of additional equity, net of transaction costs		267.3	-	-	267.3
Distributions paid or provided for	5	-	(241.2)	-	(241.2)
Total transactions with owners in their capacity as owners		267.3	(241.2)	-	26.1
Closing balance as at 30 June 2017		2,699.7	2,151.3	-	4,851.0
Opening balance as at 1 July 2017		2,699.7	2,151.3	-	4,851.0
Profit/(loss) for the year		-	1,069.8	-	- 1,069.8
Other comprehensive income/(loss) for the year		-	-	-	-
Total comprehensive income for the year		-	1,069.8	-	1,069.8
Transactions with owners in their capacity as unitholders:
Issue of additional equity, net of transaction costs	12	2.1	-	-	2.1
Buy-back of contributed equity, net of transaction costs	12	(1.1)	-	-	(1.1)
Distributions paid or provided for	5	-	(285.5)	-	(285.5)
Capital contribution1		350.1	-	-	350.1
Total transactions with owners in their capacity as owners		351.1	(285.5)	-	65.6
Closing balance as at 30 June 2018		3,050.8	2,935.6	-	5,986.4

1 DXFM as Responsible Entity of DOT made a capital contribution of 34.42 cents per unit to the existing unitholders as part of the reallocation process that was approved at the Annual General Meeting 19 September 2017.

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying note

Consolidated Statement of Cash Flows

For the year ended 30 June 2018

		2018	2017
		\$m	\$m
Cash flows from operating activities
Receipts in the course of operations (inclusive of GST)		339.5	321.8
Payments in the course of operations (inclusive of GST)		(126.4)	(118.6)
Interest received		0.3	0.2
Finance costs paid to financial institutions		(12.4)	(68.1)
Distributions received from investments accounted for using the equity method		315.1	235.9
Net cash inflow/(outflow) from operating activities	15	516.1	371.2
Cash flows from investing activities
Proceeds from sale of investment properties		288.9	422.9
Payments for capital expenditure on investment properties		(102.3)	(84.8)
Payments for acquisition of investment properties		(345.7)	(21.4)
Payments for investments accounted for using the equity method		(322.7)	(50.7)
Net cash inflow/(outflow) from investing activities		(481.8)	266.0
Cash flows from financing activities
Borrowings provided to related parties		(2,270.2)	(1,656.6)
Borrowings received from related parties		2,499.7	963.3
Payments for buy-back of contributed equity		(1.1)	-
Proceeds from issue of additional equity, net of transaction costs		2.1	267.3
Distributions paid to unit holders		(263.4)	(212.6)
Net cash inflow/(outflow) from financing activities		(32.9)	(638.6)
Net increase/(decrease) in cash and cash equivalents		1.4	(1.4)
Cash and cash equivalents at the beginning of the year		5.8	7.2
Cash and cash equivalents at the end of the year		7.2	5.8

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

About This Report

In this section

This section sets out the basis upon which the Trust'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 Trust.

Basis of preparation

The financial statements are general purpose financial reports which have been prepared in accordance with the requirements of the Constitutions of the entities within the Trust, the Corporations Act 2001, AASB's issued by the Australian Accounting Standards Board and International Financial Reporting Standards adopted by the International Accounting Standard Board.

Unless otherwise stated the financial statements have been prepared using consistent accounting policies in line with those of the previous financial year and corresponding interim reporting period.

The financial statements are presented in Australian dollars, with all values rounded to the nearest tenth of a million dollars in accordance with ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, unless otherwise stated.

The financial statements have been prepared on a going concern basis using historical cost conventions, except for investment properties, investment properties within the equity accounted investments, derivative financial instruments, and other financial liabilities which are stated at their fair value.

Dexus 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. Each entity forming part of DXS continues as a separate legal entity in its own right under the Corporations Act 2001 and is therefore required to comply with reporting and disclosure requirements under the Corporations Act 2001 and Australian Accounting Standards.

Working Capital Deficiency

As at 30 June 2018, the Trust had a net current asset deficiency of \$166.5 million (2017: \$12.4 million). This is primarily due to the provision of distribution for \$149.9 million due to be paid in August 2018.

The capital risk management is not managed at the Trust level, but rather holistically as part of the Group. This is done through a centralised treasury function which ensures that entities within the Group (including DOT) will be able to continue as a going concern.

The Group has in place both external and internal funding arrangements to support the cash flow requirements of the Trust, including undrawn facilities of \$886.6 million (2017: \$1,060.5 million) [refer to note 13 Interest bearing liabilities in the DXS financial statements].

In the event that the entity requires additional funding to meet current liabilities in the 12 months succeeding the date of this financial report, the Group will make adequate funds available to the Trust.

In determining the basis of preparation of the financial report, the directors of the responsible entity of the Trust, have taken into consideration the unutilised facilities available to the group. As such the Trust is a going concern and the Financial Statements have been prepared on that basis.

Critical accounting estimates

In the process of applying the Trust'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 6 Investment properties Page 19

Principles of consolidation

These consolidated Financial Statements incorporate the assets, liabilities and results of all subsidiaries as at 30 June 2018.

(a) Controlled entities

Subsidiaries are all entities over which the Trust has control. The Trust controls an entity when the Trust 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 Trust. They are deconsolidated from the date that control ceases.

(b) 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 Trust'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 Trust'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.

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.

As at 30 June 2018, the Trust had no investments in foreign operations.

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.

New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2018 reporting period. The Trust's assessment of the impact of these new standards and interpretations is set out below:

AASB 9 Financial Instruments (effective application date is 1 July 2018)

AASB 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities and introduces new rules for hedge accounting and impairment of financial assets. The following areas have specifically been considered.

Impairment of financial assets – The current impairment assessment model is an 'incurred loss' model requiring the Trust to consider whether or not the financial asset is impaired at the date of performing the assessment. Under AASB 9 this model has changed to an 'expected credit loss' model. Under this model, the Trust is required to consider the historical actual write off rates for a type of financial asset, and forward looking indicators that might impact the recoverability of similar financial assets currently recognised. Management is currently working through the model to quantify the impact but does not expect a material impact on the provision for doubtful debts.

The Trust intends to adopt the new standard from 1 July 2018 and will not restate comparative information.

AASB 15 Revenue from Contracts with Customers (effective application for the trust is 1 July 2018)

AASB 15 provides new guidance for determining when the Trust should recognise revenue. The new revenue recognition model is based on the principle that revenue is recognised when control of a good or service is transferred to a customer - either at a point in time or over time. The model features a contract–based five-step analysis of transactions to determine whether, how much and when revenue is recognised. The Trust's revenue is largely comprised of income under leases (see below).

Management has substantially completed its assessment of the impact of transition to the new standard and does not expect there to be an impact on the recognition and measurement of revenue although additional disclosures will be required.

The following specific revenue streams have been assessed:

Income under leases - Within its lease arrangements, the Trust provides certain services to tenants (such as utilities, cleaning, maintenance and certain parking arrangements) which will be accounted for within AASB 15. A portion of the consideration within the lease arrangement will be allocated to revenue for the provision of services. The service revenue will be recognised over time as the services are provided and as such, the timing of recognition of income is not expected to change. Such revenue will, however, be disclosed separately.

The Trust will adopt the new standard from 1 July 2018 using the modified retrospective approach whereby comparatives for the year ended 30 June 2018 will not be restated.

AASB 16 Leases (effective application for the trust is 1 July 2019)

AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. In 2018, revenue recognised from leases was approximately \$297.9 million (2017: \$267.6 million). The accounting for this lease income is not expected to change with the adoption of the new standard other than the separation of service income from lease income for disclosure purposes as a result of the application of AASB 15 described above.

With respect to leases where the Trust is lessee, all leases, including ground lease, will be required to be recognised on balance sheet with the exception of short term or low value leases. An asset (the right to use the leased item) and a financial liability to pay rentals will be recognised with associated depreciation expense and finance cost. This differs to the current operating lease treatment where lease payments are recognised on a straight-line basis over the lease term.

The Trust intends to apply the standard from 1 July 2019.

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 Trust.

The notes are organised into the following sections:

Trust performance	Property portfolio assets	Capital and financial risk management and working capital	Other disclosures
1. Operating segments	6. Investment properties	9. Capital and financial risk management	14. Audit, taxation and transaction service fees
2. Property revenue and expenses	7. Investments accounted for using the equity method	10. Commitments and contingencies	15. Cash flow information
3. Finance costs	8. Non-current assets classified as held for sale	11. Loans with related parties	16. Related parties
4. Earnings per unit		12. Contributed equity	17. Parent entity disclosures
5. Distributions paid and payable		13. Working capital	18. Subsequent events

Trust performance

In this section

This section explains the results and performance of the Trust.

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 Trust, including: results by operating segment, property revenue and expenses, finance costs, earnings per unit and distributions paid and payable.

Note 1 Operating segments

Description of segments

The Group's operating segments have been identified based on the sectors analysed within the management reports reviewed in order to monitor performance across the Group and to appropriately allocate resources.

The operating segments within DXS are reviewed on a consolidated basis and are not monitored at an individual trust level.

Disclosures concerning DXS's operating segments are presented in the Dexus Financial Report.

Note 2 Property revenue and expenses

The Trust's main revenue stream is property rental revenue and is derived from holding properties as investment properties and earning rental yields over time. Property 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. 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.

Property revenue is recognised as the service is delivered, in accordance with the terms of the relevant contracts.

	2018	2017
	\$m	\$m
Rent and recoverable outgoings	297.9	267.6
Incentive amortisation	(45.0)	(41.8)
Other revenue	41.9	53.1
Total property revenue	294.8	278.9

Property expenses of \$78.9 million (2017: \$78.8 million) includes rates, taxes and other property outgoings incurred in relation to investment properties.

Note 3 Finance costs

Borrowing costs include interest, amortisation or other 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.

A qualifying asset is an asset under development which takes a substantial period of time, where the works being carried out to bring it to its intended use or sale are expected to exceed 12 months in duration. Finance costs incurred for the acquisition and construction of a qualifying asset are capitalised to the cost of the asset for the period of time that is required to complete the asset. 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 an appropriate capitalisation rate.

	2018	2017
	\$m	\$m
Interest paid to related parties	140.9	130.0
Net fair value (gain)/loss of interest rate swaps	10.1	(0.5)
Amount capitalised	(6.1)	(3.9)
Total finance costs	144.9	125.6

The average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 5.75% (2017: 6.25%).

Note 4 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.

a) Net profit used in calculating basic and diluted earnings per unit

	2018	2017
	\$m	\$m
Profit attributable to unitholders of the parent entity	1,069.8	858.2
b) Weighted average number of units used as a denominator
	2018	2017
	No. of units	No. of units
Weighted average number of units outstanding used in calculation of basic and	1,017,299,246	968,484,893
diluted earnings per unit

Note 5 Distributions paid and payable

Distributions are recognised when declared.

a) Distribution to security holders

	2018	2017
	\$m	\$m
31 December (paid 28 February 2018)	135.6	121.6
30 June (payable 30 August 2018)	149.9	119.6
Total distribution to unitholders	285.5	241.2

b) Distribution rate

	2018	2017
	Cents	Cents
	per unit	per unit
31 December (paid 28 February 2018)	13.33	12.56
30 June (payable 30 August 2018)	14.74	11.76
Total distributions	28.07	24.32

Property portfolio assets

In this section

Property portfolio assets are used to generate the Trust's performance and are considered to be the most relevant to the operations of the Trust. 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 Trust's joint ventures comprise interests in property portfolio assets held through investments in trusts.
• 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.

Note 6 Investment properties

The Trust'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.

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 Consolidated 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.

a) Reconciliation

	Office	Development	2018	2017
	\$m	\$m	\$m	\$m
Opening balance at the beginning of the year	3,803.1	80.1	3,883.2	3,482.8
Additions	38.0	57.4	95.4	61.9
Acquisitions	345.9	-	345.9	18.2
Lease incentives	35.2	-	35.2	48.1
Amortisation of lease incentives	(43.2)	-	(43.2)	(39.0)
Rent straightlining	10.3	-	10.3	4.7
Net fair value gain/(loss) of investment properties	418.7	65.0	483.7	306.5
Closing balance at the end of the year	4,608.0	202.5	4,810.5	3,883.2

Acquisitions

• On 18 July 2017, settlement occurred for the acquisition of 100 Harris Street, Pyrmont for \$327.5 million excluding acquisition costs.

Note 6 Investment properties (continued)

b) Valuations 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 except properties under development and co-owned properties. Independent valuations may be undertaken earlier where the Responsible Entity believes there is potential for a change in the fair value of the property being the greater of 5% of the asset value, or \$5.0 million. At 30 June 2018, all investment properties were independently externally valued.

The Trust's investment properties are required to be internally valued at least every six months at each reporting period unless they have been independently externally valued. 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 Trust'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.

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.

	Fair value			Range of unobservable inputs
Class of property	hierarchy	Inputs used to measure fair value	2018	2017
Office1	Level 3	Adopted capitalisation rate	4.63% - 9.00%	4.75% - 9.50%
		Adopted discount rate	6.25% - 10.50%	6.63% - 10.50%
		Adopted terminal yield	5.00% - 9.75%	5.25% - 9.50%
		Current net market rental (per sqm)	\$346 - \$1,338	\$307 - \$1,319

1 Includes development and excludes car parks, retail and other.

Note 6 Investment properties (continued)

c) Fair value measurement, valuation techniques and inputs (continued)

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.
• 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 Trust's investment properties as shown below.

Significant inputs	Fair value measurement sensitivity to significant increase in input	Fair value measurement sensitivity to significant decrease in input
Adopted capitalisation rate
Adopted discount rate	Decrease	Increase
Adopted terminal yield
Net market rental (per sqm)
Land rate (per sqm)	Increase	Decrease

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 cash flow 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.

Note 7 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.

	2018	2017	2018	2017
Name of entity	%	%	\$m	\$m
Bent Street Trust	33.3	33.3	344.7	319.1
Dexus Creek Street Trust	50.0	50.0	161.8	143.9
Dexus Martin Place Trust1	50.0	50.0	376.9	166.3
Grosvenor Place Holding Trust2,3	50.0	50.0	452.3	385.5
Site 6 Homebush Bay Trust2	50.0	50.0	33.6	33.3
Site 7 Homebush Bay Trust2	50.0	50.0	47.2	44.9
Dexus 480 Q Holding Trust	50.0	50.0	380.5	366.7
Dexus Kings Square Trust	50.0	50.0	216.3	214.0
Dexus Office Trust Australia4,5	50.0	50.0	2,172.2	1,985.0
Dexus Eagle Street Pier Trust	50.0	50.0	33.0	31.8
Total investments accounted for using the equity method			4,218.5	3,690.5

1 On 19 July 2017, settlement occurred for the acquisition of MLC Centre, 19 Martin Place, Sydney for \$361.3 million excluding acquisition costs. This represents the Group's 25% interest. The Group's loan with related parties was subsequently repaid upon Dexus Martin Place Trust's settlement of MLC Centre.

2 These entities are 50% owned by DOTA. The Group's economic interest is therefore 75% when combined with the interest held by DOTA. These entities are classified as joint ventures and are accounted for using the equity method as a result of contractual arrangements requiring unanimous decisions on all relevant matters.

3 Grosvenor Place Holding Trust owns 50% of Grosvenor Place, at 225 George Street, Sydney, NSW. The Group's economic interest in this property is therefore 37.5%.

4 On 1 August 2017, settlement occurred on the disposal of 46 Colin Street, West Perth for \$16.8 million excluding disposal costs, representing the Group's 50% interest held through DOTA.

5 On 21 March 2018, settlement occurred for the disposal or 11 Waymouth Street, Adelaide for \$101.3 million excluding disposal costs, representing the Group's 50% interest held through DOTA.

The above entities were formed in Australia and their principal activity is property investment in Australia.

Property portfolio assets (continued)

Note 7 Investments accounted for using the equity method (continued)

		Dexus Office	Grosvenor Place		Dexus 480Q		Other joint
		Trust Australia	Holding Trust		Holding Trust		ventures		Total
	2018	2017	2018	2017	2018	2017	2018	2017	2018	2017
Summarised Statement of Financial Position	\$m	\$m	\$m	\$m	\$m	\$m	\$m	\$m	\$m	\$m
Current assets
Cash and cash equivalents	20.3	15.9	0.1	2.1	2.3	0.2	20.2	5.5	42.9	23.7
Non-current assets classified as held for sale	-	-	-	-	-	-	-	6.0	-	6.0
Loan to related party1	-	-	-	-	-	-	-	148.9	-	148.9
Other current assets	4.0	4.4	2.1	0.7	2.9	1.1	8.1	19.8	17.1	26.0
Total current assets	24.3	20.3	2.2	2.8	5.2	1.3	28.3	180.2	60.0	204.6
Non-current assets
Investment properties	2,008.4	1,865.8	452.5	385.0	384.2	366.5	1,215.5	798.9	4,060.6	3,416.2
Investments accounted for using the equity method	266.5	231.9	-	-	-	-	-	-	266.5	231.9
Other non-current assets	0.4	0.3	-	-	0.1	0.1	0.1	0.1	0.6	0.5
Total non-current assets	2,275.3	2,098.0	452.5	385.0	384.3	366.6	1,215.6	799.0	4,327.7	3,648.6
Current liabilities
Provision for distribution	17.1	21.3	-	-	-	-	4.1	3.9	21.2	25.2
Borrowings	74.5	74.5	-	-	-	-	-	-	74.5	74.5
Other current liabilities	24.7	26.5	2.4	2.3	9.1	1.2	26.2	22.0	62.4	52.0
Total current liabilities	116.3	122.3	2.4	2.3	9.1	1.2	30.3	25.9	158.1	151.7
Non-current liabilities
Borrowings	11.0	11.0	-	-	-	-	-	-	11.0	11.0
Other non-current Liabilities	0.1	-	-	-	-	-	-	-	0.1	-
Total non-current liabilities	11.1	11.0	-	-	-	-	-	-	11.1	11.0
Net assets	2,172.2	1,985.0	452.3	385.5	380.4	366.7	1,213.6	953.3	4,218.5	3,690.5
Reconciliation of carrying amounts:
Opening balance at the beginning of the year	1,985.0	1,844.8	385.5	352.9	366.7	344.1	953.3	876.8	3,690.5	3,418.6
Additions	82.4	24.4	1.9	9.9	3.8	5.0	234.7	11.5	322.8	50.8
Share of net profit/(loss) after tax	313.3	264.6	86.1	40.5	29.2	34.8	88.0	118.8	516.6	458.7
Distributions received/receivable	(208.5)	(148.8)	(21.2)	(17.8)	(19.3)	(17.2)	(62.4)	(53.8)	(311.4)	(237.6)
Closing balance at the end of the year	2,172.2	1,985.0	452.3	385.5	380.4	366.7	1,213.6	953.3	4,218.5	3,690.5
Summarised Statement of Comprehensive Income
Property revenue	154.5	151.9	25.2	21.0	26.9	24.1	71.6	57.0	278.2	254.0
Property revaluations	214.8	166.6	66.4	24.6	10.9	17.8	39.6	29.9	331.7	238.9
Gain on sale of investment properties	(2.6)	-	-	-	-	-	-	47.2	(2.6)	47.2
Interest income	0.3	0.4	0.1	0.1	-	-	0.2	-	0.6	0.5
Finance costs	(4.8)	(5.0)	-	-	-	-	-	-	(4.8)	(5.0)
Other expenses	(48.9)	(49.2)	(5.6)	(5.2)	(8.6)	(7.3)	(23.7)	(15.3)	(86.8)	(77.0)
Net profit/(loss) for the year	313.3	264.7	86.1	40.5	29.2	34.6	87.7	118.8	516.3	458.6
Total comprehensive income/(loss) for the year	313.3	264.7	86.1	40.5	29.2	34.6	87.7	118.8	516.3	458.6

1 Loan to related parties included a non-interest bearing loan payable on demand provided to the co-owners from the proceeds on sale of 39 Martin Place, Sydney, NSW. The loan was subsequently repaid upon the settlement of the MLC Centre, 19 Martin Place, Sydney.

Note 8 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 2018, the Trust had no assets held for sale

Disposals

• On 31 May 2018, settlement occurred on the Group's remaining 50% share of Southgate Complex at 3 Southgate Avenue, Melbourne for gross proceeds of \$289.0 million.

Capital and financial risk management and working capital

In this section

The Trust'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 Trust.

Note 9 Capital and financial risk management outlines how the Trust 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 Trust.

The Board determines the appropriate capital structure of the Trust, how much is borrowed from financial institutions and capital markets (debt), and how much is raised from unitholders (equity) in order to finance the Trust's activities both now and in the future. This capital structure is detailed in the following notes:

• Debt: Commitments and contingencies in note 10;

• Equity: Contributed equity in note 12.

Note 13 provides a breakdown of the working capital balances held in the Consolidated Statement of Financial Position.

Note 9 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 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. A Capital Markets Committee has been established to advise the Group Management 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 Trust manages its capital to ensure that entities within the Trust 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 Trust consists of debt, cash and cash equivalents and equity attributable to unitholders. The Trust 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 unitholders' equity;
• potential impacts on the DXS Group's credit rating; and
• other market factors.

The Trust is not rated by ratings agencies, however DXS has been rated A- by Standard and Poor's (S&P) and A3 by Moody's. Gearing levels and bank debt covenants are managed holistically as part of the DXS Group.

DXFM, the Responsible Entity for the Trust, 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.

b) Financial risk management

The Trust'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 Trust. The Trust's principal financial instruments, other than derivatives, comprise cash, and related party loans. The main purpose of financial instruments is to manage liquidity and hedge the Trust's exposure to financial risks namely:

• interest rate risk;
• liquidity risk; and
• credit risk.

The Trust uses derivatives to reduce the Trust's exposure to fluctuations in interest 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 Trust may use to hedge its risks include:

• interest rate swaps; and
• interest rate options.

The Trust does not trade in derivative instruments for speculative purposes. The Trust 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 Trust utilises. Non-derivative interest bearing financial instruments are predominantly short term liquid assets and long term debt issued at fixed rates which expose the Trust to fair value interest rate risk as the Trust may pay higher interest costs than if it were at variable rates. The Trust's borrowings which have a variable interest rate give rise to cash flow interest rate risk due to movements in variable interest rates.

The Trust'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 Trust primarily enters into interest rate derivatives to manage the associated interest rate risk. The derivative contracts are recorded at fair value in the Consolidated Statement of Financial Position, being the market value as quoted in an active market.

Interest rate derivatives require settlement of net interest receivable or payable generally 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 derivative contracts are settled on a net basis.

i) Market risk (continued)

Interest rate risk (continued)

	June 2019 \$m	June 2020 \$m	June 2021 \$m	June 2022 \$m	June 2023 \$m
Interest rate derivatives
A\$ hedged (\$)1	1,426.9	1,630.8	1,438.3	856.7	266.7
A\$ hedge rate (%)	2.69%	2.66%	2.66%	2.65%	2.91%
1 Amounts do not include fixed rate debt that has been swapped to floating rate debt through cross currency swaps.

Sensitivity analysis on interest expense

The table below shows the impact on the Trust's net interest expense of a 50 basis point movement in market interest rates. The sensitivity on cash flow arises due to the impact that a change in interest rates will have on the Trust'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.

	2018	2017
	(+/-) \$m	(+/-) \$m
+/- 0.50% (50 basis points) A\$	7.7	9.5
Total A\$ equivalent	7.7	9.5

The movement in interest expense is proportional to the movement in interest rates.

Sensitivity analysis on fair value of interest rate derivatives

The sensitivity analysis on interest rate derivatives below shows the effect on net profit or loss for changes in the fair value of interest rate derivatives for a 50 basis point movement 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 derivatives.

The fair value of interest rate derivatives is calculated as the present value of estimated future cash flows on the instruments. Although interest rate derivatives are transacted for the purpose of providing the Trust with an economic hedge, the Trust 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.

		2018	2017
		(+/-) \$m	(+/-) \$m
+/- 0.50% (50 basis points)	A\$	18.4	15.0
Total A\$ equivalent		18.4	15.0

b) Financial risk management (continued)

ii) Liquidity risk

Liquidity risk is associated with ensuring that there are sufficient funds available to meet the Trust's financial commitments as and when they fall due and planning for any unforeseen events which may curtail cash flows. The Trust 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 Trust cash requirements over the next 1-24 month period. The Trust 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 Trust:

• 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 Trust'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 Trust's interest bearing liabilities and derivative financial instruments is shown in the table below. The amounts in the table represent undiscounted cash flows.

		2018			2017
		Between	Between two			Between	Between
	Within	one and	and five	After five	Within one	one and	two and five	After five
	one year	two years	years	years	year	two years	years	years
	\$m	\$m	\$m	\$m	\$m	\$m	\$m	\$m
Payables	(69.7)	-	-	-	(68.3)	-	-	-
Loans with related parties and interest1		(122.5) (2,990.5)	-	-	(113.5)		(119.1) (2,818.3)	-
Derivative financial instruments
Derivative assets	-	1.2	13.9	0.1	-	0.7	12.9	-
Derivative liabilities	(6.8)	(0.7)	-	-	(11.7)	(5.0)	-	-
Total net derivative financial instruments2	(6.8)	0.5	13.9	0.1	(11.7)	(4.3)	12.9	-

1 Includes estimated interest and fees.

2 For interest rate swaps and options, only the net interest cash flows (not the notional principal) are included. Refer to note 9(c) for fair value of derivatives and refer to note 10(b) for financial guarantees.

(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 Trust. The Trust has exposure to credit risk on all financial assets included in the Trust's Consolidated Statement of Financial Position.

The Trust 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 International Swaps and Derivatives Association (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 Trust is exposed to credit risk on cash balances and on derivative financial instruments with financial institutions. The Trust 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 Trust's policy requirements.

Financial instrument transactions are spread among a number of approved financial institutions within specified credit limits to minimise the Trust's exposure to any one counterparty. As a result, there is no significant concentration of credit risk for financial instruments. The maximum exposure to credit risk at 30 June 2017 is the carrying amounts of financial assets recognised on the Consolidated Statement of Financial Position.

The Trust is exposed to credit risk on trade receivable balances. The Trust has a policy to continuously assess and monitor the credit quality of trade debtors on an ongoing basis. Given the historical profile and exposure of the trade receivables, it has been is determined that no significant concentrations of credit risk exists for trade receivables balances. The maximum exposure to credit risk at 30 June 2017 is the carrying amounts of the trade receivables recognised on the Consolidated Statement of Financial Position.

b) Financial risk management (continued)

iv) Fair value

As at 30 June 2018, the carrying amounts of financial assets and liabilities are held at fair value. The Trust 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, excluding cash, 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.

Key assumptions: fair value of derivatives

The fair value of derivatives have been determined based on observable market inputs (interest rates) and applying a credit or debit value adjustment based on the current credit worthiness of counterparties and the Trust.

v) Offsetting financial assets and financial liabilities

Financial assets and liabilities are offset and the net amount reported in the Consolidated 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. No financial assets and liabilities are currently held under netting arrangements.

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 Consolidated Statement of Financial Position.

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 Trust uses derivatives to manage its exposure to interest rates.

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 regularly reviews the Trust's exposures and updates its treasury policies and procedures. The Trust does not trade in derivative instruments for speculative purposes.

Note 10 Commitments and contingencies

a) Commitments

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:

	2018	2017
	\$m	\$m
Investment properties	158.8	102.9
Investments accounted for using the equity method	33.8	37.5
Total capital commitments	192.6	140.4

Lease payable commitments

The future minimum lease payments receivable by the Trust are:

	2018	2017
	\$m	\$m
Within one year	0.5	0.5
Later than one year but not later than five years	2.0	2.0
Later than five years	3.4	3.9
Total lease payable commitments	5.9	6.4

Lease receivable commitments

The future minimum lease payments receivable by the Trust are:

	2018	2017
	\$m	\$m
Within one year	243.2	240.8
Later than one year but not later than five years	951.0	642.5
Later than five years	295.4	305.9
Total lease receivable commitments	1,489.6	1,189.2

b) Contingencies

The Trust, together with DDF, DIT and DXO, is a guarantor of A\$4,358.9 million of interest bearing liabilities (refer note 13 of the Dexus Financial Report). 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 above guarantees are issued in respect of the Trust and do not constitute an additional liability to those already existing in interest bearing liabilities on the Consolidated Statement of Financial Position.

The Directors of the Responsible Entity are not aware of any other contingent liabilities in relation to the Trust, other than those disclosed in the Financial Statements, which should be brought to the attention of unitholders as at the date of completion of this report.

Note 11 Loans with related parties

The 30 June 2017 current loan with related parties balance represented a non-interest bearing loan provided by Dexus Martin Place Trust, which is co-owned by the Trust and DWPF. The balance of the loan represented the Trust's share of the proceeds from the disposal of 39 Martin Place, Sydney less the deposit paid for MLC Centre, 19 Martin Place, Sydney. This loan was subsequently repaid in on the 19 July 2017 upon Dexus Martin Place Trust's settlement of the acquisition of the MLC Centre.

Note 12 Contributed equity

Number of units on issue

	2018	2017
	No. of units	No. of units
Opening balance at the beginning of the year	1,016,967,300	967,947,692
Issue of additional equity	437,242	49,019,608
Buy-back of contributed equity	(207,665)	-
Closing balance at the end of the year	1,017,196,877	1,016,967,300

Each stapled security ranks equally with all other stapled securities for the purposes of distributions and on termination of the Trust.

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.

Note 13 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 Consolidated 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 Trust will not be able to collect all amounts due according to the original terms of the receivables.

	2018	2017
	\$m	\$m
Rent receivable	5.0	7.4
Total rental receivables	5.0	7.4
Distributions receivable	21.2	25.3
Other receivables	0.7	4.2
Total other receivables	21.9	29.5
Total receivables	26.9	36.9

c) Other current assets

	2018	2017
	\$m	\$m
Prepayments	17.1	3.4
Total other current assets	17.1	3.4

Note 13 Working capital (continued)

d) Payables

	2018 \$m	2017 \$m
Trade creditors	13.3	13.9
Accruals	1.2	1.2
Accrued capital expenditure	30.4	32.8
Prepaid income	11.8	9.0
Accrued interest	12.1	9.3
Other payables	1.2	2.1
Total payables	70.0	68.3

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 Trust 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.

	2018	2017
	\$m	\$m
Provision for distribution	149.9	119.6
Total current provisions	149.9	119.6

Movements in each class of provision during the financial year, other than employee benefits, are set out below:

	2018	2017
	\$m	\$m
Opening balance at the beginning of the year	119.6	91.0
Additional provisions	285.5	241.2
Payment of distributions	(255.2)	(212.6)
Closing balance at the end of the year	149.9	119.6

A provision for distribution has been raised for the period ended 30 June 2018. This distribution is to be paid on 30 August 2018.

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 Trust.

Note 14 Audit, taxation and transaction service fees

During the year, the Auditor and its related practices earned the following remuneration:

	2018	2017
	\$'000	\$'000
Audit fees
PwC Australia - audit and review of Financial Statements	387	419
PwC fees paid in relation to outgoings audits	96	74
PwC Australia - regulatory audit and compliance services	5	5
Audit fees paid to PwC	488	498
Taxation fees
Fees paid to PwC Australia and New Zealand	-	20
Taxation fees paid to PwC	-	20

Total audit and taxation fees paid to PwC 488 518

Note 15 Cash flow information

a) Reconciliation of cash flows from operating activities

Reconciliation of net profit after income tax to net cash outflows from operating activities:

	2018	2017
	\$m	\$m
Net profit/(loss) for the year	1,069.8	858.2
Capitalised interest	(6.1)	(3.9)
Net fair value (gain)/loss of investment properties	(487.3)	(314.7)
Share of net (profit)/loss of investments accounted for using the equity method	(516.3)	(458.7)
Net fair value (gain)/loss of derivatives	(12.0)	(70.3)
Net fair value (gain)/loss of interest rate swaps	3.7	3.8
Net (gain)/loss on sale of investment properties	(1.9)	(23.4)
Change in operating assets and liabilities
(Increase)/decrease in receivables	10.1	5.8
(Increase)/decrease in prepaid expenses	(5.5)	1.3
(Increase)/decrease in other non-current assets - investments	319.8	248.5
(Increase)/decrease in other non-current assets	0.5	(0.6)
Increase/(decrease) in payables	1.0	(2.8)
Increase/(decrease) in current liabilities	(0.5)	(2.0)
Increase/(decrease) in other non-current liabilities	140.8	130.0
Net cash inflow/(outflow) from operating activities	516.1	371.2

Note 15 Cash flow information (continued)

b) Net debt reconciliation

	Loans with
	related
	parties
	\$m
Balance as at 1 July 2017	2,845.6
Changes from financing cash flows
Proceeds from loan with related party	2,499.7
Repayment of loan with related party	(2,270.2)
Non cash changes
Swap interest accrued	-
Capital reallocation	(350.1)
Intercompany interest capitalised to loan	140.9
Changes in fair value	1.1
Balance as at 30 June 2018	2,867.0

Note 16 Related parties

Responsible Entity

DXFM is the Responsible Entity of the Trust.

Management Fees

Under the terms of the Trust's Constitution, the Responsible Entity is entitled to receive fees in relation to the management of the Trust. DXFM's parent entity, DXH, is entitled to be reimbursed for administration expenses incurred on behalf of the Trust. Dexus Property Services Pty Limited (DXPS), a wholly owned subsidiary of DXH, is entitled to property management fees from the Trust.

Related party transactions

Responsible Entity fees in relation to the Trust assets are on a cost recovery basis.

Transactions with related parties

There were a number of transactions and balances between the Trust and the Responsible Entity and its related entities, as detailed below:

	2018	2017
	\$'000	\$'000
Responsible Entity fees paid and payable	16,346	13,869
Property management fees paid and payable to DXPS	6,924	6,467
Responsible Entity fees payable at the end of each reporting year (included above)	968	932
Property management fees payable at the end of each reporting year (included above)	570	504
Administration expenses payable at the end of each reporting year (included above)	104	1,063
Rent received	2,365	2,348

Note 16 Related parties (continued)

Entities within DXS

Aggregate amounts included in the determination of profit that resulted from transactions with each class of other related parties:

	2018	2017
	\$'000	\$'000
Interest expense	144,527	133,749
Interest bearing loans advanced from entities within DXS	2,149,649	989,470
Interest bearing loans advanced to entities within DXS	1,979,292	1,638,554

Related party transactions

Responsible Entity fees in relation to the Trust assets are on a cost recovery basis.

There were a number of transactions and balances between the Trust and the Responsible Entity and its related entities, as detailed below:

	2018	2017
	\$'000	\$'000
Responsible Entity fees paid and payable	16,346	13,869
Property management fees paid and payable to DXPS	6,924	6,467
Responsible Entity fees payable at the end of each reporting year (included above)	968	932
Property management fees payable at the end of each reporting year (included above)	570	504
Administration expenses payable at the end of each reporting year (included above)	104	1,063
Rent received	2,760	2,348

Key management personnel compensation

	2018	2017
	\$'000	\$'000
Compensation
Short-term employee benefits	9,275	8,967
Post employment benefits	350	717
Security-based payments	3,725	3,011
Total key management personal compensation	13,350	12,695

Note 17 Parent entity disclosures

The financial information for the parent entity of Dexus Office 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.

Note 17 Parent entity disclosures (continued)

a) Summary financial information

The individual Financial Statements for the parent entity show the following aggregate amounts:

	2018	2017
	\$m	\$m
Total current assets	1,107.0	1,270.3
Total assets	9,057.6	7,865.3
Total current liabilities	213.3	168.8
Total liabilities	3,093.2	3,036.3
Equity
Contributed equity	3,050.8	2,699.7
Retained profits	2,913.6	2,129.4
Total equity	5,964.4	4,829.1
Net profit/(loss) for the year	1,069.7	858.1
Total comprehensive income/(loss) for the year	1,069.8	858.1

b) Guarantees entered into by the parent entity

Refer to note 10 for details of guarantees entered into by the parent entity.

c) Contingent liabilities

The parent entity had no contingent liabilities as at 30 June 2018 (2017: 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:

	2018	2017
	\$m	\$m
Investment properties	37.7	8.2
Total capital commitments	37.7	8.2

Note 18 Subsequent events

Since the end of the year, the Directors are not aware of any matter or circumstance not otherwise dealt with in their Directors' Report or the Financial Statements that has significantly or may significantly affect the operations of the Trust, the results of those operations, or state of the Trust's affairs in future financial periods.

Indep endent suditor's r ep ort

To the stapled security holders of Dexus Office Trust

Report on the audit of the financial report

Our opinion

In our opinion:

The accompanying financial report of Dexus Office Trust (the Registered Scheme) and its controlled entities (together the Group) is in accordance with the Corporations Act 2oor, including:

• (a) giving a true and fair view of the Group's financial position as at 30 June zor8 and of its financial performance for the year then ended
• (b) complying with Australian Accounting Standards and the Corporations Regulations zoot.

lVhsttoe hsue audited.

The Group financial report comprises:

• r the Consolidated Statement of Financial Position as at 30 June zor8
• o the Consolidated Statement of Comprehensive Income for the year then ended
• . the Consolidated Statement of Changes in Equity for the year then ended
• . the Consolidated Statement of Cash Flows for the year then ended
• o the Notes to the Financial Statements, which include significant accounting policies
• o the Directors' Declaration.

Basts for opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in theAuditor's responsibilitiesfor the audit of thefinancial report section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independ.ence

We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act zoot and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES rro Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

PricewoterhouseCoopers,ABN gz 7Ao 4Sg 757 One InternationqlTouers Sydney,Watermans Quay, Barangeroo, GPO BOX 265o, SYDNEY NSW zoot T: +6t z 8266 oooo, F: +6r z 8266 9999,www.pwc.com.au I'euel rt, tPSQ, t69 Macquarie Street, Parramatta NSW zt5o, PO Box tt55 Parramatta NSW ztz4 T: +6t z 9659 2476, F: +6t z 8266 9999,www.ptuccom.au

Liability limited by a scheme approved under Professional Standards Legislation.

a

report as a whole.

thresholds.

We chose FFO because, in our view, it is the key perforrnance measure of the Group. An explanation of what is included in FFO is outlined in Note r, Operating segments of the Dexus Annual Report. We utlised a S% threshold based on our professional judgement, noting it is within the range of commonly acceptable profi t related

a

Our audit approach

An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis ofthe financial report.

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates.

Jfi7'l*rfrfiEtt rEfr@& l@ffifitt'ttfiEtr1 a For the purpose ofour audit we used overall materiality of \$16.1 million, which represents approximately5% of the Group's adjusted profit before tax (Funds From Operations or FFO). We applied this threshold, together with qualitative considerations, to determine the scope ofour audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial The Group is a consolidated entity with operations in Australia. The scope ofour audit included the parent entity Dexus Office Trust and its controlled entities. Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. Amongst other relevant topics, we communicated the following key audit matter to the Board Audit Committee: - Valuation of investment properties, including those investment properties in investments accounted for under the equity method This is further described in the Key auditmaffers section of our report. a a a a

Key audit mltters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context.

	@GttEfrrttttfi@
	Vc,luation of inuesftnent properties, including those inuestnent properties in inuestrnents	To assess the valuation of investment properties we performed the following procedures amongst others:
	occountedfor und.er the equitg rnethod (Refer to Note 6 and 7)	We considered the valuation methodology adopted a by the Group and found it to be consistent with
	The Group's investment property portfolio comprises:	commonly accepted valuation approaches used for investment properties in the industry and the Group's valuation policy.
a	Directly held properties included in the Consolidated Statement of Financial Position as Inuestment Properhes valued at \$4,8ro.5 million as at 30 June zor8 (zor7: \$3,889.2 million).	We obtained recent independent property market a reports to develop an understanding ofthe prevailing market conditions in which the Group invests. We leveraged this knowledge to form
a	The Group's share of investment properties held through equity accounted investments included in the Consolidated Statement of Financial Position in Inuestments accountedfor using the equity	independent expectations for movements in investment property values and underlying key assumptions such as capitalisation rates and discount rates.
	methodvalued at \$4,327.r million as at 3o June zotS (zot7: \$3,648.r million).	We compared the capitalisation rates and discount a rates used by the Group to ranges we determined were reasonable based on benchmark market data.

Investment properties are carried at fair value at reporting date using the Group's policy as described in Note 6. The valuation of investment properties is dependent on a number ofassumptions and inputs including, tenant information, property age and location, expected future rental profiles, and prevailing market conditions. Amongst others, the following assumptions are key in establishing fair value:

• . The capitalisation rate
• . The adopted discount rate.

We considered the valuation of investment properties to be a key audit matter due to the:

• r Financial significance of investment properties in the Consolidated Statement of Financial Position.

• o Potential for changes in the fair value of investment properties to have a significant effect on the Group's comprehensive income.

• were reasonable based on benchmark market data. Where capitalisation rates, discount rates and/or movements in individual property valuations fell outside of our anticipated ranges, we performed the following procedures, amongst others:

• Met with the Group's Senior Valuation Manager and discussed the specifics of the selected individual properties including, amongst other things, any new leases entered into during the year, lease expiries, capital expenditure and vacancy rates.
• Agreed significant changes supporting documentation agreements. in inputs to such as new lease

We found that typically the variances related to the relative age, or size/location ofthe individual property in comparison to the market. In the context ofthe specific properties identified, we found the reasons for variances appropriate.

EE'ftiltrfi''iltfi''

• a Inherently subjective nature of investment property valuations arising from the use of assumptions in the valuation methodology.
• a Sensitivity of valuations to key input assumptions, including capitalisation rates, and discount rates.

As the Group engaged external experts to determine the fair value of investment properties, we considered the independence, experience and competency of the Group's independent experts as well as the results oftheir procedures.

Other information

The Directors of the responsible entity of the Group, Dexus Funds Management Limited (the Directors), are responsible for the other information. The other information comprises the information included in the financial report for the year ended 30 June zor8, including the Directors' Report, but does not include the financial statements and related note disclosures and our auditor's report thereon.

a

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for thefinancial report

The Directors 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 zoot and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the Directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level ofassurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonablybe expected to influence the economic decisions of users taken on the basis of the financial report.

A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/arr.pdf. This description forms part of our

PricewaterhouseCoopers

Matthew Lunn Partner

auditor's report.

Sydney 14 August 2o1B

Dexus Operations Trust Financial Report 30 June 2018

	Directors' Report 1
	Auditor's Independence Declaration 7
	Consolidated Statement of Comprehensive Income 8
	Consolidated Statement of Financial Position 9
	Consolidated Statement of Changes in Equity 10
	Consolidated Statement of Cash Flows 11
	About This Report 12
	Trust performance 16
Note 1	Operating segments 16
Note 2	Management fee revenue 16
Note 3	Property revenue and expenses 17
Note 4	Management operations, corporate and administration expenses 17
Note 5	Finance costs 17
Note 6	Taxation 18
Note 7	Earnings per unit 20
Note 8	Distributions paid and payable 20
	Property portfolio assets 21
Note 9	Investment properties 21
Note 10	Inventories 24
Note 11	Non-current assets classified as held for sale 25
	Capital and financial risk management and working capital 26
Note 12	Capital and financial risk management 26
Note 13	Commitments and contingencies 29
Note 14	Contributed equity 30
Note 15	Reserves 31
Note 16	Working capital 32
	Other disclosures 34
Note 17	Plant and Equipment 34
Note 18	Intangible assets 34
Note 19	Available for sale financial assets 36
Note 20	Audit, taxation and transaction service fees 36
Note 21	Cash flow information 37
Note 22	Security-based payment 38
Note 23	Related parties 39
Note 24	Parent entity disclosures 40
Note 25	Subsequent events 40
	Directors' Declaration 41
	Independent Auditor's Report 42

Directors' Report

The Directors of Dexus Funds Management Limited (DXFM) as Responsible Entity of Dexus Operations Trust (DXO or the Trust) present their Directors' Report together with the consolidated Financial Statements for the year ended 30 June 2018. The consolidated Financial Statements represents DXO and its consolidated entities.

The Trust together with Dexus Diversified Trust (DDF), Dexus Industrial Trust (DIT) and Dexus Office Trust (DOT) form the Dexus (DXS or the Group) stapled security.

Directors and Secretaries

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	Resigned
W Richard Sheppard, BEc (Hons), FAICD	1 January 2012
Elizabeth A Alexander, AM, BComm, FCA, FAICD, FCPA	1 January 2005	24 October 2017
Penny Bingham-Hall, BA (Industrial Design), FAICD, SF (Fin)	10 June 2014
John C Conde, AO, BSc, BE (Hons), MBA, FAICD	29 April 2009
Tonianne Dwyer, BJuris (Hons), LLB (Hons)	24 August 2011
Mark Ford, Dip. Tech (Commerce), CA, FAICD	1 November 2016
The Hon. Nicola L Roxon, BA/LLB (Hons), GAICD	1 September 2017
Darren J Steinberg, BEc, FRICS, FAPI, FAICD	1 March 2012
Peter B St George, CA(SA), MBA	29 April 2009

Company Secretaries

The names and details of the Company Secretaries of DXFM as at 30 June 2018 are as follows:

Brett D Cameron LLB/BA (Science and Technology), GAICD, FGIA

Appointed: 31 October 2014

Brett is the General Counsel and Company Secretary of Dexus 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 22 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 and a Fellow of the Governance Institute of Australia.

Rachel Caralis LLB/B Com (Acc), M Com (Property Development), Grad Dip (Applied Corporate Governance) AGIA, AAPI

Appointed: 17 February 2016

Rachel is Senior Legal Counsel and Company Secretary of Dexus.

Rachel joined Dexus in 2008 after five years at King and Wood Mallesons where she worked in the real estate and projects team. Rachel has 15 years' experience as in-house counsel and in private practice working on real estate and corporate transactions, funds management and corporate finance for wholesale and listed clients.

Rachel graduated from the University of Canberra with a Bachelor of Laws and Bachelor of Commerce (Accounting), has completed a Masters of Commerce (Property Development) at the University of Western Sydney and a Graduate Diploma in Applied Corporate Governance at the Governance Institute of Australia. Rachel is a member of the Law Society of New South Wales, an associate of the Australian Property Institute and an associate of the Governance Institute of Australia.

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 13 times during the year. Ten Board meetings were main meetings and three meetings were held to consider specific business.

	Main meetings held	Main meetings attended	Specific meetings held	Specific meetings attended
W Richard Sheppard	10	10	3	3
Elizabeth A Alexander, AM 1	4	4	-	-
Penny Bingham-Hall	10	10	3	3
John C Conde, AO	10	10	3	3
Tonianne Dwyer	10	10	3	3
Mark Ford	10	9	3	3
The Hon. Nicola L Roxon 2	8	8	3	3
Darren J Steinberg	10	10	3	3
Peter B St George	10	10	3	3

1 Ceased directorship 24 October 2017.

2 Commenced directorship on 1 September 2017.

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.

The table below shows Non-Executive Directors' attendances at Board Committee meetings of which they were a member during the year ended 30 June 2018.

		Board Audit Committee	Board Risk Committee		Board Nomination Committee		Board People and Remuneration Committee
	Held	Attended	Held	Attended	Held	Attended	Held	Attended
W Richard Sheppard	-	-	-	-	4	4	5	5
Elizabeth A Alexander,AM1	1	1	-	-	-	-	-	-
Penny Bingham-Hall	-	-	4	4	4	4	5	5
John C Conde, AO	3	3	-	-	4	4	1	1
Tonianne Dwyer	4	4	4	4	-	-	-	-
The Hon. Nicola L Roxon2	-	-	3	3	-	-	4	4
Mark Ford	4	4	4	4	-	-	-	-
Peter B St George	4	4	4	4	-	-	-	-

1 Ceased directorship 24 October 2017.

2 Commenced directorship on 1 September 2017.

Elizabeth A Alexander and Tonianne Dwyer were also Directors of Dexus Wholesale Property Limited (DWPL) and attended DWPL Board meetings during the year ended 30 June 2018. John Conde joined as a Director of Dexus Wholesale Property Limited (DWPL) on 25 October 2017.

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
W Richard Sheppard	70,090
Penny Bingham-Hall	16,534
John C Conde, AO	16,667
Tonianne Dwyer	16,667
Mark Ford	1,667
The Hon. Nicola L Roxon	Nil
Darren J Steinberg1	1,219,571
Peter B St George	17,333

1 Includes interests held directly and through performance rights (refer note 22).

Operating and financial review

The results for the year ended 30 June 2018 were:

• profit attributable to unitholders was \$90.6 million (2017: \$93.0 million);
• total assets were \$921.4 million (2017: \$772.2 million); and
• net assets were \$224.4 million (2017: \$359.4 million).

A review of the results, financial position and operations of the Group, of which the Trust forms part thereof, is set out in the Operating and Financial Review of the Dexus Financial Report and forms part of this Directors' Report.

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
W Richard Sheppard	Star Entertainment Group	21 November 2012
Penny Bingham-Hall	BlueScope Steel Limited	29 March 2011
	Fortescue Metals Group Ltd	16 November 2016
John C Conde, AO	Whitehaven Coal Limited	3 May 2007
	Cooper Energy Limited	25 February 2013
Tonianne Dwyer	Cardno Limited3	25 June 2012
	Metcash Limited	24 June 2014
	ALS Limited	1 July 2016
	OZ Minerals Limited	21 March 2017
The Hon. Nicola L Roxon	Lifestyle Communities Limited	1 September 2017
Peter B St George	First Quantum Minerals Limited1	20 October 2003
Mark Ford	Kiwi Property Group Limited2	16 May 2011

1 Listed for trading on the Toronto Stock Exchange in Canada.

2 Listed for trading on the New Zealand Stock Exchange since 22 December 2014.

3 Directorship ceased 27 January 2016.

Principal activities

During the year the principal activity of the Trust 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 Trust's activities during the year.

Total value of Trust assets

The total value of the assets of the Trust as at 30 June 2018 was \$921.4 million (2017: \$772.2 million). Details of the basis of this valuation are outlined in the Notes to the Financial Statements and form part of this Directors' Report.

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 Trust, other than the information already outlined in this Directors' Report or the Financial Statements accompanying this Directors' Report would be unreasonably prejudicial to the Trust.

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 Trust, the results of those operations, or the state of the Trust's affairs in future financial years.

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 Trust, the results of those operations, or the state of the Trust's affairs in future financial years.

Distributions

Distributions paid or payable by the Trust for the year ended 30 June 2018 are outlined in note 8 of the Notes to the Financial Statements and form part of this Directors' report.

DXFM fees

Details of fees paid or payable by the Trust to DXFM are eliminated on consolidation for the year ended 30 June 2018. Details are outlined in note 23 of the Notes to the Financial Statements and form part of this Directors' Report.

Units on Issue

The movement in units on issue in the Trust during the year and the number of units on issue as at 30 June 2018 are detailed in note 14 of the Notes to the Financial Statements and form part of this Directors' Report.

Environmental regulation

DXS senior management, through its Board Risk Committee, oversees 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.

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 Trust pursuant to the Dexus Specific Terms of Business agreed for all engagements with PwC, to the extent that the Trust 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.

Directors' Report (continued)

Audit

Auditor

PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.

Non-audit services

The Trust may decide to employ the Auditor on assignments, in addition to its statutory audit duties, where the Auditor's expertise and experience with the Trust and/or DXS 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 20 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:

• All non-audit services have been reviewed by the Board Audit Committee to ensure that they do not impact the impartiality and objectivity of the auditor
• None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants.

The above Directors' statements are in accordance with the advice received from the Board Audit Committee.

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 7 and forms part of this Directors' Report.

Corporate governance

DXFM's Corporate Governance Statement is available at: www.dexus.com/corporategovernance

Rounding of amounts and currency

As the Trust is an entity of the kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, the Directors have chosen to round amounts in this Directors' Report and the accompanying Financial Report to the nearest thousand dollars, unless otherwise indicated. The Trust is an entity to which the Instrument applies. All figures in this Directors' Report and the Financial Statements, except where otherwise stated, are expressed in Australian dollars.

Auditor's Independence Declaration

As lead auditor for the audit of Dexus Operations Trust for the year ended 3o June zor8, I declare that to the best of my knowledge and belief, there have been:

• (a) no contraventions of the auditor independence requirements of the Corporations Act 2ool in relation to the audit; and
• (b) no contraventions ofanyapplicable code ofprofessional conduct in relationtothe audit.

This declaration is in respect of Dexus Operations Trust and the entities it controlled during the period.

MatthewLunn Partner PricewaterhouseCoopers

Sydney 4 August ²⁰¹⁸

PriceutaterhouseCoopers, ABN ge 78o 4gg 757 OneInternationalTowersSydney,WatermansQuay,Barangaroo,GPOBOXz6go,SID.NEY NSW zoot T: +6t z 8266 oooo, F: +6t z 8266 9999,tDunulpwc.eom.au Leuel u, IPSQ, t69 Macquarie Street, Parramatta NSW zt5o, PO Box ttg5 Parramatta NSW ztz4 T: +6t z 9659 2476, F: +6t z 8266 9999, www.Wc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2018

		2018	2017
	Note	\$'000	\$'000
Revenue from ordinary activities
Property revenue	3	36,034	28,040
Development revenue		145,579	224,343
Distribution revenue		357	321
Interest revenue		97	101
Management fee revenue and other	2	176,661	160,641
Total revenue from ordinary activities		358,728	413,446
Net fair value gain of investment properties	9(a)	29,788	14,416
Other income		455	-
Total income		388,971	427,862
Expenses
Property expenses	3	(11,430)	(9,683)
Development costs	10	(95,845)	(146,860)
Finance costs	5	(16,190)	(9,403)
Impairment of inventories		(599)	-
Impairment of goodwill	18	(99)	(99)
Share of net loss of investments accounted for using the equity method		(819)	-
Transaction costs		(1,132)	-
Management operations, corporate and administration expenses	4	(135,996)	(127,687)
Total expenses		(262,110)	(293,732)
Profit/(loss) before tax		126,861	134,130
Income tax expense	6(a)	(36,260)	(41,121)
Profit/(loss) for the year		90,601	93,009
Other comprehensive income/(loss):
Changes in fair value of available-for-sale financial assets	15	(456)	(175)
Total comprehensive income/(loss) for the year		90,145	92,834
		Cents	Cents
Earnings per unit on profit attributable to unitholders of the parent entity
Basic earnings per unit	7	8.91	9.60
Diluted earnings per unit	7	8.91	9.60

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

Consolidated Statement of Financial Position

As at 30 June 2018

		2018	2017
	Note	\$'000	\$'000
Current assets
Cash and cash equivalents	16(a)	5,095	2,035
Receivables	16(b)	32,513	33,939
Non-current assets classified as held for sale	11	2,027	-
Inventories	10	37,573	-
Other current assets		3,851	3,871
Total current assets		81,059	39,845
Non-current assets
Investment properties	9	222,058	179,614
Plant and equipment	17	16,035	16,441
Inventories	10	268,826	211,315
Investments accounted for using the equity method		293	-
Intangible assets	18	314,639	309,450
Available for sale financial assets	19	15,529	13,425
Other non-current assets		2,913	2,106
Total non-current assets		840,293	732,351
Total assets		921,352	772,196
Current liabilities
Payables	16(c)	21,715	38,435
Current tax liabilities	6(c)
		5,178	24,777
Provisions	16(d)	82,123	79,885
Other current liabilities		7	-
Total current liabilities		109,023	143,097
Non-current liabilities
Loans with related parties		479,801	172,105
Deferred tax liabilities	6(e)	93,740	82,912
Provisions	16(d)	10,763	9,656
Other non-current liabilities		3,579	5,064
Total non-current liabilities		587,883	269,737
Total liabilities		696,906	412,834
Net assets		224,446	359,362
Equity
Contributed equity	14	86,700	261,664
Reserves	15	43,637	44,190
Retained profits		94,109	53,508
Total equity		224,446	359,362

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 2018

		Contributed equity	Asset revaluation reserve	Treasury securities reserve	Security based payments reserve	Available for-sale financial assets	Retained profits/ (losses)	Total equity
	Note	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000
Opening balance as at 1 July 2016		237,985	42,738	(379)	305	1,761	10,499	292,909
Profit/(loss) for the year		-	-	-	-	-	93,009	93,009
Other comprehensive income/(loss) for the year		-	-	-	-	(175)	-	(175)
Total comprehensive income/(loss) for the year		-	-	-	-	(175)	93,009	92,834
Transactions with owners in their capacity as unitholders:
Issue of additional equity, net of transaction costs		23,679	-	-	-	-	-	23,679
Purchase of securities, net of transaction costs	15	-	-	(200)	-	-	-	(200)
Security-based payments expense	15	-	-	-	140	-	-	140
Distributions paid or provided for	8	-	-	-	-	-	(50,000)	(50,000)
Total transactions with owners in their capacity as owners		23,679	-	(200)	140	-	(50,000)	(26,381)
Closing balance as at 30 June 2017		261,664	42,738	(579)	445	1,586	53,508	359,362
Opening balance as at 1 July 2017		261,664	42,738	(579)	445	1,586	53,508	359,362
Profit/(loss) for the year		-	-	-	-	-	90,601	90,601
Other comprehensive income/(loss) for the year		-	-	-	-	(456)	-	(456)
Total comprehensive income/(loss) for the year		-	-	-	-	(456)	90,601	90,145
Transactions with owners in their capacity as unitholders:
Issue of additional equity, net of transaction costs		177	-	316	(221)	-	-	272
Buy-back of contributed equity, net of transaction costs		(46)	-	-	-	-	-	(46)
Purchase of securities, net of transaction costs	15	-	-	(279)	-	-	-	(279)
Security-based payments expense	15	-	-	-	87	-	-	87
Distributions paid or provided for	8	-	-	-	-	-	(50,000)	(50,000)
Capital return1		(175,095)	-	-	-	-	-	(175,095)
Total transactions with owners in their capacity as owners		(174,964)	-	37	(134)	-	(50,000)	(225,061)
Closing balance as at 30 June 2018		86,700	42,738	(542)	311	1,130	94,109	224,446

1. DXFM, as Responsible Entity of DXO, made a capital return of 17.21 cents per unit to the existing unit holders as part of the capital reallocation process that was approved at the Annual General Meeting on 19 September 2017.

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Consolidated Statement of Cash Flows

For the year ended 30 June 2018

		2018	2017
	Note	\$'000	\$'000
Cash flows from operating activities
Receipts in the course of operations (inclusive of GST)		234,692	213,118
Payments in the course of operations (inclusive of GST)		(173,777)	(125,894)
Interest received		97	101
Finance costs paid to financial institutions		1,546	(186)
Income and withholding taxes paid		(45,031)	(52,809)
Proceeds from sale of property classified as inventory		147,942	221,980
Payments for property classified as inventory		(182,129)	(73,106)
Net cash inflow/(outflow) from operating activities	21	(16,660)	183,204
Cash flows from investing activities
Proceeds from sale of investment properties		-	912
Payments for capital expenditure on investment properties		(21,749)	(8,109)
Payments for acquisition of investments		(1,000)	-
Payments for investments accounted for using the equity method		(1,112)	-
Payments for plant and equipment		(3,077)	(3,048)
Payments for other intangible assets		(10,983)	(7,140)
Net cash inflow/(outflow) from investing activities		(37,921)	(17,385)
Cash flows from financing activities
Borrowings provided to related parties		(458,180)	(298,596)
Borrowings received from related parties		572,384	137,120
Payments for buy-back of contributed equity		(46)	-
Proceeds from issue of additional equity, net of transaction costs		177	23,679
Purchase of securities for security-based payments plans		(7,051)	(7,369)
Distributions received		357	321
Distributions paid to security holders		(50,000)	(25,000)
Net cash inflow/(outflow) from financing activities		57,641	(169,845)
Net increase/(decrease) in cash and cash equivalents		3,060	(4,026)
Cash and cash equivalents at the beginning of the year		2,035	6,061
Cash and cash equivalents at the end of the year		5,095	2,035

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

About This Report

In this section

This section sets out the basis upon which the Trust'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 Trust.

Basis of preparation

The financial statements are general purpose financial reports which have been prepared in accordance with the requirements of the Constitutions of the entities within the Trust, the Corporations Act 2001, AASB's issued by the Australian Accounting Standards Board and International Financial Reporting Standards adopted by the International Accounting Standard Board.

Unless otherwise stated the financial statements have been prepared using consistent accounting policies in line with those of the previous financial year and corresponding interim reporting period.

The financial statements are presented in Australian dollars, with all values rounded in the nearest thousand dollars in accordance with ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, unless otherwise stated.

The financial statements have been prepared on a going concern basis using historical cost conventions, except for investment properties, investment properties within the equity accounted investments, derivative financial instruments, and other financial liabilities which are stated at their fair value.

Dexus 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. Each entity forming part of DXS continues as a separate legal entity in its own right under the Corporations Act 2001 and is therefore required to comply with reporting and disclosure requirements under the Corporations Act 2001 and Australian Accounting Standards.

Working capital deficiency

As at 30 June 2018, the Trust had a current net asset deficiency of \$28.0 million (2017: \$103.3 million). This is due to the provision of distribution of \$50.0 million due to be paid in August 2018.

The capital risk management is not managed at the Trust level, but rather holistically as part of the Group. This is done through a centralised treasury function which ensures that entities within the Group (including DXO) will be able to continue as a going concern.

The Group has in place both external and internal funding arrangements to support the cash flow requirements of the Trust, including undrawn facilities of \$886.6 million (2017: \$1,060.5 million) [refer to note 13 Interest bearing liabilities in the DXS financial statements].

In the event that the entity requires additional funding to meet current liabilities in the 12 months succeeding the date of this financial report, the Group will make adequate funds available to the Trust.

In determining the basis of preparation of the financial report, the directors of the responsible entity of the Trust, have taken into consideration the unutilised facilities available to the group. As such the Trust is a going concern and the Financial Statements have been prepared on that basis.

The Financial Statements are presented in Australian dollars.

As at 30 June 2018, the Trust had no investments in foreign operations.

Critical accounting estimates

In the process of applying the Trust'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 9	Investment properties	Page 21
Note 10	Inventories	Page 24
Note 18	Intangible assets	Page 34
Note 22	Security-based payment	Page 38

Principles of consolidation

These consolidated Financial Statements incorporate the assets, liabilities and results of all subsidiaries as at 30 June 2018.

(a) Controlled entities

Subsidiaries are all entities over which the Trust has control. The Trust controls an entity when the Trust 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 Trust. They are deconsolidated from the date that control ceases.

(b) 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 Trust'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 Trust'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.

(c) Employee share trust

The Group has formed a trust to administer the Group's security-based employee benefits. The employee share trust is consolidated as the substance of the relationship is that the trust is controlled by the Group.

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.

New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2018 reporting period. The Trust's assessment of the impact of these new standards and interpretations is set out below:

AASB 9 Financial Instruments (effective application for the Trust is 1 July 2018)

AASB 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities and introduces new rules for hedge accounting and impairment of financial assets. The following areas have specifically been considered.

Impairment of financial assets – The current impairment assessment model is an 'incurred loss' model requiring the Trust to consider whether or not the financial asset is impaired at the date of performing the assessment. Under AASB 9 this model has changed to an 'expected credit loss' model. Under this model, the Trust is required to consider the historical actual write off rates for a type of financial asset, and forward looking indicators that might impact the recoverability of similar financial assets currently recognised. Management is currently working through the model to quantify the impact but does not expect a material impact on the provision for doubtful debts.

Available for sale financial assets – The Trust has available-for-sale financial assets representing investments in equity securities which will remain being measured at fair value with fair value changes recognised through other comprehensive income. Under AASB 9, the gains and losses recognised in other comprehensive income will not be recycled to profit and loss on disposal of the equity instrument.

The Trust intends to adopt the new standard from 1 July 2018 and will not restate comparative information.

New accounting standards and interpretations (continued)

AASB 15 Revenue from Contracts with Customers (effective application for the Trust is 1 July 2018)

AASB 15 provides new guidance for determining when the Trust should recognise revenue. The new revenue recognition model is based on the principle that revenue is recognised when control of a good or service is transferred to a customer - either at a point in time or over time. The model features a contract–based five-step analysis of transactions to determine whether, how much and when revenue is recognised. The Trust's revenue is largely comprised of income under leases (see below), sales of inventory, management fees and development services.

Management has substantially completed its assessment of the impact of transition to the new standard and does not expect there to be an impact on the recognition and measurement of revenue although additional disclosures will be required.

The following specific revenue streams have been assessed:

Income under leases - Within its lease arrangements, the Trust provides certain services to tenants (such as utilities, cleaning, maintenance and certain parking arrangements) which will be accounted for within AASB 15. A portion of the consideration within the lease arrangement will be allocated to revenue for the provision of services. The service revenue will be recognised over time as the services are provided and as such, the timing of recognition of income is not expected to change. Such revenue will, however, be disclosed separately.

Investment management and property management fees - Where the Trust earns investment and property management fees, the fees will continue to be recognised monthly over the duration of the agreements. Management is still assessing any impact of the new guidance on property management contracts and whether these should be presented on a gross or net basis.

Sales of inventory and development services - AASB 15 provides an expedient whereby contracts that are completed as of the date of transition (1 July 2018) are not required to be re-assessed. Management expects to apply this expedient. There is no impact on existing sales of inventory and development services as the Trust has no uncompleted inventory or development contracts at 1 July 2018 which require re-assessment. All sales of inventory and development service contracts entered into post 1 July 2018 will be evaluated in accordance with the new model which will require management to assess: 1) whether there are multiple performance obligations in the contract and if so, whether the consideration is allocated based on relative stand-alone selling price; 2) whether the Trust's obligations are satisfied at a point in time or over time and 3) the appropriate timing and pattern of recognition.

The Trust will adopt the new standard from 1 July 2018 using the modified retrospective approach whereby comparatives for the year ended 30 June 2018 will not be restated.

AASB 16 Leases (effective application for the Trust is 1 July 2019)

AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. In 2018, revenue recognised from leases was approximately \$32.5 million (2017: \$24.6 million). The accounting for this lease income is not expected to change with the adoption of the new standard other than the separation of service income from lease income for disclosure purposes as a result of the application of AASB 15 described above.

With respect to leases where the Trust is lessee, all leases, including ground lease, will be required to be recognised on balance sheet with the exception of short term or low value leases. An asset (the right to use the leased item) and a financial liability to pay rentals will be recognised with associated depreciation expense and finance cost. This differs to the current operating lease treatment where lease payments are recognised on a straight-line basis over the lease term.

The Trust intends to apply the standard from 1 July 2019.

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 Trust.

The notes are organised into the following sections:

Trust performance	Property portfolio assets	Capital and financial risk management and working capital	Other disclosures
1. Operating segments	9. Investment properties	12. Capital and financial risk management	17. Plant and Equipment
2. Management fee revenue	10. Inventories	13. Commitments and contingencies	18. Intangible assets
3. Property revenue and expenses	11. Non-current assets classified as held for sale	14. Contributed equity	19. Available for sale financial assets
4. Management operations, corporate and administration expenses		15. Reserves	20. Audit, taxation and transaction service fees
5. Finance costs		16. Working capital	21. Cash flow information
6. Taxation			22. Security-based payment
7. Earnings per unit			23. Related parties
8. Distributions paid and payable			24. Parent entity disclosures
			25. Subsequent events

Trust performance

In this section

This section explains the results and performance of the Trust.

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 Trust, including: results by operating segment, management fee revenue, property revenue and expenses, management operations, corporate and administration expenses, finance costs, taxation, earnings per unit and distributions paid and payable.

Note 1 Operating segments

Description of segments

The Trust's operating segments have been identified based on the sectors analysed within the management reports reviewed in order to monitor performance across the Group and to appropriately allocate resources.

The operating segments within DXS are reviewed on a consolidated basis and are not monitored at an individual trust level.

Disclosures concerning DXS's operating segments are presented in the Dexus Financial Report.

Note 2 Management fee revenue

Management fees are brought to account on an accruals basis.

	2018	2017
	\$'000	\$'000
Investment management & responsible entity fees	96,630	85,618
Rent and lease renewal fees	12,061	12,483
Property management fees	37,939	35,411
Capital works and development fees	8,111	10,122
Wages recovery and other fees	21,920	17,007
Total management fee revenue	176,661	160,641

Note 3 Property revenue and expenses

Property rental revenue is derived from holding properties as investment properties and earning rental yields over time. 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. 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.

Property, development and fund management fee revenue is recognised as the service is delivered, in accordance with the terms of the relevant contracts.

	2018	2017
	\$'000	\$'000
Rent and recoverable outgoings	32,467	24,644
Incentive amortisation	(4,353)	(3,903)
Other revenue	7,920	7,299
Total property revenue	36,034	28,040

Property expenses of \$11.4 million (2017: \$9.7 million) includes rates, taxes and other property outgoings incurred in relation to investment properties.

Note 4 Management operations, corporate and administration expenses

	2018	2017
	\$'000	\$'000
Audit, taxation, legal and other professional fees	4,099	5,010
Depreciation and amortisation	9,178	7,761
Employee benefits expense and other staff expenses	106,220	99,833
Administration and other expenses	16,499	15,083
Management operations, corporate and administration expenses	135,996	127,687

Note 5 Finance costs

Borrowing costs include interest, amortisation or other 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.

A qualifying asset is an asset under development which takes a substantial period of time, where the works being carried out to bring it to its intended use or sale are expected to exceed 12 months in duration. Finance costs incurred for the acquisition and construction of a qualifying asset are capitalised to the cost of the asset for the period of time that is required to complete the asset. 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 an appropriate capitalisation rate.

	2018	2017
	\$'000	\$'000
Interest paid to related parties	19,945	11,799
Amount capitalised	(3,959)	(2,582)
Other finance costs	204	186
Total finance costs	16,190	9,403

The average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 5.75% (2017: 6.25%).

Trust Performance (continued)

Note 6 Taxation

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 that 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.

a) Income tax (expense)/benefit

	2018	2017
	\$'000	\$'000
Current income tax expense	(25,431)	(37,486)
Deferred income tax expense	(10,828)	(3,635)
Total income tax expense	(36,260)	(41,121)

Deferred income tax expense included in income tax expense comprises:

Total deferred tax expense		(10,828)	(3,635)
Increase in deferred tax liabilities		(12,942)	(5,370)
Increase in deferred tax assets		2,114	1,735

b) Reconciliation of income tax (expense)/benefit to net profit

	2018	2017
	\$'000	\$'000
Profit before income tax	126,861	134,130
Profit subject to income tax	126,861	134,130
Prima facie tax expense at the Australian tax rate of 30% (2017: 30%)	(38,058)	(40,239)
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
(Non-assessable)/non-deductible items	1,010	(882)
Other timing differences	789	-
Income tax expense	(36,260)	(41,121)

c) Current Tax Liabilities

	2018	2017
	\$'000	\$'000
Current tax liabilities	5,178	24,777
Total current tax liabilities	5,178	24,777

Trust Performance (continued)

Note 6 Taxation (continued)

d) Deferred tax assets

	2018	2017
	\$'000	\$'000
The balance comprises temporary differences attributable to:
Employee provisions	13,604	11,378
Other	1,805	1,917
Total non-current assets - deferred tax assets	15,409	13,295
Movements:
Opening balance at the beginning of the year	13,295	11,560
Movement in deferred tax asset arising from temporary differences	2,114	1,735
Credited to the Statement of Comprehensive Income	2,114	1,735
Closing balance at the end of the year	15,409	13,295
e) Deferred tax liabilities
	2018	2017
	\$'000	\$'000
The balance comprises temporary differences attributable to:
Intangible assets	74,812	74,911
Investment properties	34,184	20,893
Other	153	403
Total non-current liabilities - deferred tax liabilities	109,149	96,207
Movements
Opening balance at the beginning of the year	96,207	90,837
Movement in deferred tax liability arising from temporary differences	12,942	5,370
Charged/(credited) to the Statement of Comprehensive Income	12,942	5,370
Closing balance at the end of the year	109,149	96,207
Net deferred tax liabilities
	2018	2017
	\$'000	\$'000
Deferred tax assets	15,409	13,295
Deferred tax liabilities	(109,149)	(96,207)
Net deferred tax liabilities	(93,740)	(82,912)

Note 7 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.

a) Net profit used in calculating basic and diluted earnings per unit

	2018	2017
	\$'000	\$'000
Profit attributable to unitholders of the parent entity	90,601	93,009

b) Weighted average number of units used as a denominator

	2018	2017
	No. of units	No. of units
Weighted average number of units outstanding used in calculation of basic and diluted
earnings per unit	1,017,299,246	968,484,893

Note 8 Distributions paid and payable

Distributions are recognised when declared.

a) Distribution to unit holders

2018	2017
\$'000	\$'000
50,000	-
-	50,000
50,000	50,000

b) Distribution rate

	2018	2017
	Cents per unit	Cents per unit
30 June (payable 30 August 2018)	4.92	-
30 June (paid 29 August 2017)	-	4.92
Total distributions	4.92	4.92

c) Franked dividends

	2018	2017
	\$'000	\$'000
Opening balance at the beginning of the year	33,298	1,910
Income tax paid during the year	45,030	52,817
Franking credits utilised for payment of distribution	(21,429)	(21,429)
Closing balance at the end of the year	56,899	33,298

As at 30 June 2018, the Trust had a current tax liability of \$5.2 million, which will be added to the franking account balance once payment is made.

Property portfolio assets

In this section

This section summarises the property portfolio assets.

Property portfolio assets are used to generate the Trust's performance and are considered to be the most relevant to the understanding of the operating performance of the Trust. The assets are detailed in the following notes:

• Investment properties: relates to investment properties, both stabilised and under development.
• Inventories: relates to the Trust'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.

Note 9 Investment properties

The Trust'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.

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.

a) Reconciliation

	Office \$'000	Industrial \$'000	Development \$'000	2018 \$'000	2017 \$'000
Opening balance at the beginning of the year	129,999	31,756	17,859	179,614	155,456
Additions	1,633	1,301	18,472	21,406	8,014
Lease incentives	2,910	521	-	3,431	4,405
Amortisation of lease incentives	(1,742)	(552)	-	(2,294)	(2,241)
Rent straightlining	1,915	221	-	2,136	391
Disposals	-	-	-	-	(827)
Transfer to non-current assets classified as held	-	(2,023)	-	(2,023)	-
for sale Transfer to inventories	(10,000)	-	-	(10,000)	-
Transfer from/(to) development properties	-	28,484	(28,484)	-	-
Net fair value gain/(loss) of investment properties	19,284	6,511	3,993	29,788	14,416
Closing balance at the end of the year	143,999	66,219	11,840	222,058	179,614

Property portfolio assets (continued)

Note 9 Investment properties (continued)

b) Valuations 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 except properties under development and co-owned properties. Independent valuations may be undertaken earlier where the Responsible Entity believes there is potential for a change in the fair value of the property being the greater of 5% of the asset value, or \$5.0 million. At 30 June 2018, all investment properties were independently externally valued.

The Trust's investment properties are required to be internally valued at least every six months at each reporting period (interim and full-year) unless they have been independently externally valued. Internal valuations are compared to the carrying value of investment properties at the reporting date. Where the Directors determine that 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 Trust'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.

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.

	Fair value	Range of unobservable inputs
Class of property	hierarchy Inputs used to measure fair value	2018	2017
Office1	Level 3 Adopted capitalisation rate	5.88%	6.25%
	Adopted discount rate	7.25%	7.50%
	Adopted terminal yield	6.25%	6.63%
	Current net market rental (per sqm)	\$462	\$449
Industrial	Level 3 Adopted capitalisation rate		6.25% - 7.25%
	Adopted discount rate	7.00% - 7.50%	7.25% - 7.50%
	Adopted terminal yield		6.75% - 7.25%
	Current net market rental (per sqm)	\$69 - \$79	\$67 - \$77
Development	Level 3 Land rate (per sqm)	\$38 - \$677	\$35 - \$90
		5.50% - 6.50% 6.25% - 7.00%

1 Excludes car parks, retail and other.

Property portfolio assets (continued)

Note 9 Investment properties (continued)

c) Fair value measurement, valuation techniques and inputs (continued)

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.
• 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 Trust's investment properties as shown below.

Significant inputs	Fair value measurement sensitivity to significant increase in input	Fair value measurement sensitivity to significant decrease in input
Adopted capitalisation rate
Adopted discount rate	Decrease	Increase
Adopted terminal yield
Net market rental (per sqm)
Land rate (per sqm)	Increase	Decrease

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 cash flow 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.

Note 10 Inventories

Development properties held for repositioning, construction and sale are recorded at the lower of cost or 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.

Development revenue includes proceeds on the sale of inventory and revenue earned through the provision of development services on assets sold as inventory. Revenue earned on the provision of development services is recognised using the percentage complete method. The stage of completion is measured by reference to costs incurred to date as a percentage of estimated total costs for each contract. Where the project result can be reliably estimated, development services revenue and associated expenses are recognised in profit or loss. Where the project result cannot be reliably estimated, profits are deferred and the difference between consideration received and expenses incurred is carried forward as either a receivable or payable. Development services revenue and expenses are recognised immediately when the project result can be reliably estimated.

Transfers from investment properties to inventories occur when there is a change in intention regarding the use of the property from an intention to hold for rental income or capital appreciation purposes to an intention to develop and sell. The transfer price is recorded as the fair value of the property as at the date of transfer. Development activities will commence immediately after they transfer.

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) Development properties held for sale

	2018 \$'000	2017 \$'000
Current assets
Development properties held for resale	37,573	-
Total current assets - inventories	37,573	-

Non-current assets
Development properties held for resale	268,826	211,315
Total non-current assets - inventories	268,826	211,315
Total assets - inventories	306,399	211,315

b) Reconciliation

	2018	2017
	\$'000	\$'000
Opening balance at the beginning of the year	211,315	276,084
Transfer from investment properties	10,000	-
Disposals	(10,046)	(148,321)
Impairment	(599)	-
Acquisitions and additions	95,729	83,552
Closing balance at the end of the year	306,399	211,315

Disposals

On the 22 June 2018, 140 George Street, Parramatta was sold to DOTA.

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. Noncurrent assets classified as held for sale relate to investment properties and are measured at fair value.

As at 30 June 2018, the held for sale balance relates to Truganina land lots to be disposed of in the next 12 months.

Capital and financial risk management and working capital

In this section

The Trust's overall risk management program focuses on reducing volatility from impacts of movements in financial markets and seeks to minimise potential adverse effects on the financial performance of the Trust.

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).

The Board determines the appropriate capital structure of the Trust, how much is borrowed from financial institutions and capital markets (debt), and how much is raised from security holders (equity) in order to finance the Trust's activities both now and in the future. This capital structure is detailed in the following notes:

• Debt: Interest bearing liabilities in note 12,
• Equity: Contributed equity in note 14 and Reserves and retained profits in note 15
• Note 16 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 Trust (as part of DXS) has an established governance structure which consists of the Group Management Committee and Capital Markets Committee.

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. A Capital Markets Committee has been established to advise the Group Management 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 Trust 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 Trust consists of debt, cash and cash equivalents and equity attributable to security holders. The Trust 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 Trust is not rated by ratings agencies, however, DXS is rated A- by Standard and Poor's (S&P) and A3 by Moody's. Gearing levels and bank debt covenants are managed holistically as part of the DXS Group.

DXFM is the Responsible Entity for the Trust. 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.

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. Dexus Wholesale Funds Limited (DWFL), a wholly owned entity, has been issued with an AFSL as it is the Responsible Entity for Dexus Wholesale Industrial Fund (DWIF). These entities are subject to the capital requirements described above.

b) Financial risk management

The Trust'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 Trust. The Trust'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 Trust's exposure to financial risks namely:

• interest rate risk;
• liquidity risk; and
• credit risk.

i) Market risk

Interest rate risk

Interest rate risk arises from interest bearing financial assets and liabilities that the Trust utilises. Non-derivative interest bearing financial instruments are predominantly short term liquid assets and long term debt issued at fixed rates which expose the Trust to fair value interest rate risk as the Trust may pay higher interest costs than if it were at variable rates. The Trust's borrowings which have a variable interest rate give rise to cash flow interest rate risk due to movements in variable interest rates.

The Trust'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 Trust, which is managed on a portfolio basis.

Sensitivity analysis on interest expense

The table below shows the impact on the Trust's net interest expense of a 50 basis point movement in market interest rates. The sensitivity on cash flow arises due to the impact that a change in interest rates will have on the Trust's floating rate debt on average during the financial year.

		2018	2017
		(+/-) \$'000	(+/-) \$'000
+/- 0.50% (50 basis points)	A\$	2,399	861

The movement in interest expense is proportional to the movement in interest rates.

ii) Liquidity risk

Liquidity risk is associated with ensuring that there are sufficient funds available to meet the Trust's financial commitments as and when they fall due and planning for any unforeseen events which may curtail cash flows. The Trust 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 Trust cash requirements over the next 1-24 month period. The Trust 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 Trust:

• 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).

b) Financial risk management (continued)

ii) Liquidity risk (continued)

Refinancing risk (continued)

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 Trust is exposed to credit risk on cash balances and on derivative financial instruments with financial institutions. The Trust 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 Trust's policy requirements.

Financial instrument transactions are spread among a number of approved financial institutions within specified credit limits to minimise the Trust's exposure to any one counterparty. As a result, there is no significant concentration of credit risk for financial instruments. The maximum exposure to credit risk at 30 June 2018 is the carrying amounts of financial assets recognised on the Statement of Financial Position.

The Trust is exposed to credit risk on trade receivable balances. The Trust has a policy to continuously assess and monitor the credit quality of trade debtors on an ongoing basis. Given the historical profile and exposure of the trade receivables, it has been is determined that no significant concentrations of credit risk exists for trade receivables balances. The maximum exposure to credit risk at 30 June 2018 is the carrying amounts of the trade receivables recognised on the Statement of Financial Position.

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 Trust's interest bearing liabilities and derivative financial instruments is shown in the table below. The amounts in the table represent undiscounted cash flows.

		2018				2017
		Between Between After				Between	Between two
	Within one	one and	two and	five	Within one	one and two	and five	After five
	year	two years	five years	years	year	years	years	years
	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000
Payables	(21,715)	-	-	-	(38,435)	-	-	-
Interest bearing loans with related parties and interest1	(20,500)	(500,468)	-	-	(7,246)	(7,600)	(179,874)	-

1 Includes estimated interest.

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 Trust. The Trust has exposure to credit risk on all financial assets included in the Trust's Statement of Financial Position.

The Trust 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 an 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 International Swaps and Derivatives Association (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.

b) Financial risk management (continued)

iv) Fair value

As at 30 June 2018 and 30 June 2017, the carrying amounts of financial assets and liabilities are held at fair value. The Trust 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, excluding cash, 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.

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. No financial assets and liabilities are currently held under netting arrangements.

Note 13 Commitments and contingencies

a) Commitments

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:

	2018	2017
	\$'000	\$'000
Investment properties	1,029	12,696
Inventories	1,998	24,646
Total capital commitments	3,027	37,342

Lease payable commitments

The future minimum lease payments payable by the Trust are:

	2018	2017
	\$'000	\$'000
Within one year	7,402	5,827
Later than one year but not later than five years	19,871	20,008
Later than five years	-	1,608
Total lease payable commitments	27,273	27,443

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.

Note 13 Commitments and contingencies (continued)

a) Commitments (continued)

Lease receivable commitments

The future minimum lease payments receivable by the Trust are:

	2018	2017
	\$'000	\$'000
Within one year	33,988	25,840
Later than one year but not later than five years	147,693	94,590
Later than five years	67,542	96,009
Total lease receivable commitments	249,223	216,439

b) Contingencies

DDF, together with DIT, DOT and DXO, is a guarantor of A\$4,358.9 million of interest bearing liabilities. 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 Trust has bank guarantees of \$43.4 million, comprising \$42.2 million held to comply with the terms of the Australian Financial Services Licences (AFSL) and \$1.2 million largely in respect of developments.

The above guarantees are issued in respect of the Trust and represent 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 Trust, 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 14 Contributed equity

Number of units on issue

2017
No. of units
967,947,692
49,019,608
-
1,016,967,300

Each stapled security ranks equally with all other stapled securities for the purposes of distributions and on termination of the Trust.

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.

Capital and financial risk management and working capital (continued)

Note 15 Reserves

	2018	2017
	\$'000	\$'000
Asset revaluation reserve	42,738	42,738
Security-based payment reserve	311	445
Available for sale financial assets	1,130	1,586
Treasury securities reserve	(542)	(579)
Total reserves	43,637	44,190
Movements:
Asset revaluation reserve
Opening balance at the beginning of the year	42,738	42,738
Closing balance at the end of the year	42,738	42,738
Security-based payments reserve
Opening balance at the beginning of the year	445	305
Issue of securities to employees	(221)	(185)
Security-based payment expense	87	325
Closing balance at the end of the year	311	445
Available for sale financial assets
Opening balance at the beginning of the year	1,586	1,761
Fair value (loss)/gain on securities	(456)	(175)
Closing balance at the end of the year	1,130	1,586
Treasury securities reserve
Opening balance at the beginning of the year	(579)	(379)
Issue of securities to employees	316	154
Purchase of securities	(279)	(354)
Closing balance at the end of the year	(542)	(579)

Nature and purpose of reserves

Asset revaluation reserve

The asset revaluation reserve is used to record the fair value adjustment arising on a business combination.

Security-based payment reserve

The security-based payment reserve is used to recognise the fair value of performance rights to be issued under the Deferred Short Term Incentive Plans (DSTI) and the Long Term Incentive Plans (LTI). Refer to note 22 for further details.

Available for sale financial assets

Changes in the fair value arising on valuation of investments, classified as available for sale financial assets, are recognised in other comprehensive income and accumulated in a separate reserve within equity. Amounts are reclassified to profit or loss when the associated assets are sold, transferred or impaired.

Treasury securities reserve

The treasury securities reserve is used to record the acquisition of securities purchased to fulfil the obligations of the Deferred Short Term Incentive Plans (DSTI) and the Long Term Incentive Plans (LTI). As at 30 June 2018, DXS held 1,645,469 stapled securities which includes acquisitions of 726,280 and unit vesting of 589,953 (2017: 1,509,142).

Note 16 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 Trust will not be able to collect all amounts due according to the original terms of the receivables.

	2018	2017
	\$'000	\$'000
Rent receivable	2,437	4,622
Total rental receivables	2,437	4,622
Fee Receivable	25,643	26,277
Receivables from related entities	4,115	2,386
Other receivables	318	654
Total other receivables	30,076	29,317
Total receivables	32,513	33,939

c) Payables

\$'000 \$'000 Trade creditors 17,220 4,862 Accruals 3,809 3,555 Accrued capital expenditure 12,545 8,040 GST payable 324 116 Other payables 4,537 5,142 Total payables 38,435 21,715	2018	2017

d) 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 Trust 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 Trust 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 22.

Note 16 Working capital (continued)

d) Provisions (continued)

	2018	2017
	\$'000	\$'000
Provision for distribution	50,000	50,000
Provision for employee benefits	32,123	29,885
Total current provisions	82,123	79,885

Non-current provisions relate to employee benefits.

Movements in each class of provision during the financial year, other than employee benefits, are set out below:

	2018 \$'000	2017 \$'000
Provision for distribution
Opening balance at the beginning of the year	50,000	25,000
Additional provisions	50,000	50,000
Payment of distributions	(50,000)	(25,000)
Closing balance at the end of the year	50,000	50,000

A provision for distribution has been raised for the period ended 30 June 2018. This distribution is to be paid on 30 August 2018.

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 Trust.

Note 17 Plant and Equipment

Plant and equipment is stated at historical cost less depreciation and accumulated impairment. Historical cost includes expenditure that is directly attributable to its acquisition. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Trust and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Statement of Comprehensive Income during the reporting period in which they are incurred.

Plant and equipment is tested for impairment whenever events or changes in circumstances indicate that the carrying amounts exceed their recoverable amounts.

Depreciation is calculated using the straight-line method so as to allocate their cost, net of their residual values, over their expected useful lives as follows:

• Furniture and fittings 10-20 years
• IT and office equipment 3-5 years

	2018	2017
	\$'000	\$'000
Opening balance at the beginning of the year	16,441	16,481
Additions	3,075	3,048
Depreciation charge	(3,481)	(3,088)
Closing balance at the end of the year	16,035	16,441
	2018	2017
	\$'000	\$'000
Cost	27,846	25,500
Accumulated depreciation	(11,811)	(9,059)
Cost - Fully depreciated assets written off	(729)	(3,599)
Accumulated depreciation - Fully depreciated assets written off	729	3,599
Net book value as at the end of the year	16,035	16,441

Note 18 Intangible assets

Management rights represent the asset management rights owned by Dexus Holdings Pty Limited, a wholly owned subsidiary of DXO, which entitles 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 \$3.7 million (2017: \$4.1 million) are measured at cost and amortised using the straight-line method over their estimated remaining useful lives of 15 years. Management rights that are deemed to have an indefinite life are held at a value of \$286.0 million (2017: \$286.0 million).

Software is measured at cost and amortised using the straight-line method over its estimated useful life, expected to be three to five years.

Note 18 Intangible assets (continued)

	2018	2017
	\$'000	\$'000
Management rights
Opening balance at the beginning of the year	290,088	290,418
Amortisation charge	(330)	(330)
Closing balance at the end of the year	289,758	290,088
Cost	294,382	294,382
Accumulated amortisation	(4,624)	(4,294)
Total management rights	289,758	290,088
Goodwill
Opening balance at the beginning of the year	1,211	1,310
Impairment	(99)	(99)
Closing balance at the end of the year	1,112	1,211
Cost	2,998	2,998
Accumulated impairment	(1,886)	(1,787)
Total goodwill	1,112	1,211
Software
Opening balance at the beginning of the year	18,151	15,348
Additions	10,983	7,140
Amortisation charge	(5,365)	(4,337)
Closing balance at the end of the year	23,769	18,151
Cost	37,488	36,738
Accumulated amortisation	(13,719)	(18,587)
Cost - Fully amortised assets written off	(2,790)	(10,233)
Accumulated amortisation - Fully amortised assets written off	2,790	10,233
Total software	23,769	18,151
Total non-current intangible assets	314,639	309,450

Goodwill represents the excess of the cost of an acquisition over the fair value of the Trust'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).

During the 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.

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.

Note 18 Intangible assets (continued)

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%-20.0% (2017: 10.0%–20.0%) was used incorporating an appropriate risk premium for a management business.
• Cash flows have been discounted at 9.0% (2017: 9.0%) based on externally published weighted average cost of capital for an appropriate peer group plus an appropriate premium for risk. A 1.0% (2017: 1.0%) decrease in the discount rate would increase the valuation by \$20.0 million (2017: \$18.6 million).

Note 19 Available for sale financial assets

Available for sale financial assets comprise DXS securities acquired on-market in order to fulfil the future requirements of the security-based payment plans.

They are included in non-current assets except for those securities that will be used to fulfil security based payment plans that vest within 12 months, which are classified as current assets. Changes in fair value arising on valuation of investments are recognised in other comprehensive income net of tax, in a separate reserve in equity. Amounts are reclassified to profit or loss when the associated assets are sold, transferred or impaired.

Note 20 Audit, taxation and transaction service fees

During the year, the Auditor and its related practices earned the following remuneration:

2018	2017
	\$ \$
Audit fees
PwC Australia - audit and review of Financial Statements 263,360	262,803
PwC fees paid in relation to outgoings audits 5,000	3,856
PwC Australia - regulatory audit and compliance services 247,187	176,868
Audit fees paid to PwC 515,547	443,527

Transaction services fees

Fees paid to PwC Australia - other	30,000	25,000
Total transaction services fees paid to PwC	30,000	25,000
Total audit, taxation and transaction services fees paid to PwC	545,547	468,527

Note 21 Cash flow information

a) Reconciliation of cash flows from operating activities

Reconciliation of net profit after income tax to net cash inflows from operating activities:

\$'000 \$'000 Net profit/(loss) for the year 93,009 90,601 Capitalised interest 11,712 19,306 Depreciation and amortisation 9,178 7,761 Impairment of inventories - 599 Impairment of goodwill 99 99 Net fair value (gain)/loss of investment properties (29,788) (14,416) Share of net (profit)/loss of investments accounted for using the equity method - 819 Lease incentives (1,301) (3,724) Distribution revenue (321) (357)
Change in operating assets and liabilities
(Increase)/decrease in receivables 5,953 1,426
(Increase)/decrease in inventories 74,296 (37,573)
(Increase)/decrease in other current assets 20 (2,074)
(Increase)/decrease in other non-current assets (6,306) (44,389)
Increase/(decrease) in payables 18,097 (16,839)
Increase/(decrease) in current liabilities (17,354) (11,296)
Increase/(decrease) in other non-current liabilities 4,356 488
(Increase)/decrease in deferred tax liabilities 3,635 10,828
183,204 Net cash inflow/(outflow) from operating activities (16,660)

b) Net debt reconciliation

Reconciliation of net debt movements:

	Loans with
	related
	parties
	\$'000
Balance as at 1 July 2017	172,105
Changes from financing cash flows
Proceeds from loan with related party	572,384
Repayment of loan with related party	(458,180)
Non cash changes
Capital reallocation	175,095
Intercompany interest capitalised to loan	18,397
Balance as at 30 June 2018	479,801

Note 22 Security-based payment

The DXFM Board has approved a grant of performance rights to DXS stapled securities to eligible participants. Awards, via the 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. The fair value of the performance rights is adjusted to reflect market vesting conditions. 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 Trust 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 payment 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 Sharebased Payment, fair value is determined independently using Binomial 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 Trust 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) 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 Payment, 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 2018 was 263,222 (2017: 274,801) and the fair value of these performance rights is \$9.88 (2017: \$10.00) per performance right. The total security-based payment expense recognised during the year ended 30 June 2018 was \$2,665,556 (2017: \$2,858,356).

b) 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 Sharebased Payment, 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 2018 was 465,701 (2017: 480,660). The weighted average fair value of these performance rights is \$9.02 (2017: \$8.04) per performance right. The total securitybased payment expense recognised during the year ended 30 June 2018 was \$3,805,708 (2017: \$5,123,989).

Note 23 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 and the investment manager for DITA.

DXH is also the parent entity of DWPL and DWFL, the Responsible Entities of DWPF and HWPF respectively.

DXH is the Investment Manager of DOTA.

Management Fees

Under the terms of the Constitutions of the entities within the Trust, the Responsible Entity and Investment Manager are entitled to receive fees in relation to the management of the Trust. DXFM's parent entity, DXH, is entitled to be reimbursed for administration expenses incurred on behalf of the Trust. Dexus Property Services Pty Limited (DXPS), a wholly owned subsidiary of DXH, is entitled to property management fees from the Trust.

Related party transactions

Transactions between the consolidated entity and related parties were made on commercial terms and conditions. All agreements with third party funds and joint ventures are conducted on normal commercial terms and conditions.

Transactions with related parties

	2018	2017
	\$	\$
Responsible Entity fee income	96,630,688	85,618,268
Property management fee income	37,938,614	35,411,201
Responsible Entity fees receivable at the end of each reporting year (included above)	8,181,859	7,491,622
Property management fees receivable at the end of each reporting year (included above)	3,801,771	3,288,957
Key management personnel compensation	2018	2017 \$
Compensation	\$
Short-term employee benefits	9,275,046	8,967,303
Post employment benefits	349,530	717,454
Security-based payments	3,725,389	3,010,935
Total key management personnel compensation	13,349,965	12,695,692

Note 24 Parent entity disclosures

The financial information for the parent entity of Dexus Operations 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

a) Summary financial information
The individual Financial Statements for the parent entity show the following aggregate amounts:
	2018	2017
	\$'000	\$'000
Total current assets	442,413	258,118
Total assets	709,286	558,608
Total current liabilities	77,791	94,732
Total liabilities	557,591	267,184
Equity
Contributed equity	86,700	261,664
Retained profits	64,995	29,759
Total equity	151,695	291,423
Net profit/(loss) for the year	85,236	94,309
Total comprehensive income/(loss) for the year	85,236	94,309

b) Guarantees entered into by the parent entity

Refer to note 13(b) for details of guarantees entered into by the parent entity.

c) Contingent liabilities

Refer to note 13(b) for details of the parent entity's contingent liabilities.

d) Capital commitments

The parent entity had no capital commitments as at 30 June 2018 (2017: nil)

Note 25 Subsequent events

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 with in their Directors' Report or the Financial Statements that has significantly or may significantly affect the operations of the Trust, the results of those operations, or state of the Trust's affairs in future financial periods.

Independent quditor's rep ort

To the stapled security holders of Dexus Operations Trust

Report on the audit of the financial report

Our opinion

In our opinion:

The accompanyrng financial report of Dexus Operations Trust (the Registered Scheme) and its controlled entities (together the Group) is in accordance with the Corporations Act 2oor, including:

• (a) giving a true and fair view of the Group's financial position as at 30 June zor8 and of its financial performance for the year then ended
• (b) complying with Australian Accounting Standards and the Corporations Regulations zoot.

Whstue hsue o:udited

The Group financial report comprises:

• . the Consolidated Statement of Financial Position as at 30 June zor8
• o the Consolidated Statement of Comprehensive Income for the year then ended
• o the Consolidated Statement of Changes in Equity for the year then ended
• . the Consolidated Statement of Cash Flows for the year then ended
• o the Notes to the Financial Statements, which include significant accounting policies
• . the Directors' Declaration.

Basisfor opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in theAuditor's responsibilitiesfor the audit of thefinancial report section ofour report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independ.ence

We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act zoot and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES rro Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

PricewqterhouseCoopers, ABN gz 78o 4gS 757

One InternqtionqlTowers Sydney,Watermans Quay, Barangaroo, GPO BOX z6go, SYDNEY NSW zoot T: +6t z 8266 oooo, F: +6t z 8266 9999,w1D1u.pwc.com.au

Leuel tt, IPSQ, t6g Macquarie Street, Parrqmqtta NSW ztgo, PO Box ttgg Parramatta NSW ztz4 T: +6t z 9659 2476, F: +6t z 8266 9999,uruw.p1Dc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

Our audit approach

An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis ofthe financial report.

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates.

Ml/Flr-ftrm EtftfiIlt tm W@

For the purpose ofour audit we used overall materiality of \$3.6 million, which represents approximately S% of the Group's adjusted profit before tax (Funds a

• From Operations or FFO). We applied this threshold, together with qualitative considerations, to determine the scope ofour audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.
• We chose FFO because, in our view, it is the key performance measure of the Group. An explanation of what is included in FFO is outlined in Note r, Operating segments of the Dexus Annual Report. a
• We utlised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable profi t related thresholds. a

The Group is a consolidated entity with operations in Australia. The scope ofour audit included the parent entity Dexus Operations Trust and its controlled entities.

Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events.

a

• o Amongst other relevant topics, we communicated the following key audit matters to the Board Audit Committee:
• Valuation of investment properties
• Carrying amount of inventory
• Carrying amount of indefi nite life intangible assets
• Development revenue
• o These are further described in the Key audit matters section of our report.

Key audtt matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context.

B@EME@TA
Va,lua.tion of inuesttnent properties (Refer to Note 9)	To assess we performed the following procedures amongst others:
The Group's investment property portfolio comprises \$zzz.o million (zot7: g:i79.6 million) of office and industrial properties directly held in Australia.	We considered the valuation methodology a adopted bythe Group and found it to be consistent with commonly accepted valuation approaches used for investment properties in the industry and the Group's valuation policy.
Investment properties are carried at fair value at reporting date using the Group's policy as described in Note 9. The valuation of investment properties is dependent on a number of assumptions and inputs including, tenant information, property age and location, expected future rental profiles, and prevailing market conditions. Amongst others, the following assumptions are key in establishing fair value:	We obtained recent independent property market a reports to develop an understanding ofthe prevailing market conditions in which the Group invests. We leveraged this knowledge to form independent expectations for movements in investment property values and underlying key assumptions such as capitalisation rates and discount rates.
The capitalisation rate
The adopted discount rate. We considered the valuation of investment properties	We compared the capitalisation rates and a discount rates used by the Group to ranges we determined were reasonable based on benchmark market data. Where capitalisation rates, discount
to be a key audit matter due to the: Financial significance of investment properties in the Consolidated Statement of Financial Position.	rates and/or movements in individual property valuations fell outside of our anticipated ranges, we performed the following procedures, amongst
o Potential for changes in the fair value of investment properties to have a significant effect on the Group's comprehensive income.	others: - Met with the Group's Senior Valuation Manager and discussed the specifics of the
o Inherently subjective nature of investment property valuations arising from the use of assumptions in the valuation methodology.	selected individual properties including, amongst other things, any new leases entered into during the year, lease expiries,
	capital expenditure and vacancy rates.

• o Sensitivity ofvaluations to key input assumptions, including capitalisation rates, and discount rates.
• Agreed significant changes in inputs to supporting documentation such as new lease agreements.

We found that the vanances to the relative age, or size/location ofthe individual property in comparison to the market. In the context ofthe specific properties identified, we found the reasons for variances appropriate.
As the Group engaged external experts to a determine the fair value of investment properties, we considered the independence, experience and competency of the Group's independent experts as well as the results oftheir procedures.
To assess carryrng amount we performed the following procedures amongst others
We used a risk based approach to select a sample a ofinventory assets on which to perform net realisable value testing. For the selected assets we: - Discussed with management the life cycle of the project, key project risks, changes to project strategy, current and future estimated sales prices, construction progress and costs and any new and previous impairments. - Tested a sample of costs capitalised to inventory to ensure that the cost had been capitalised in accordance with the Group's policy/methodology and the requirements of Australian Accounting Standards. - Compared the market capitalisation rates and net market income used by the Group to calculate net realisable value to market capitalisation rates and rental rates published by external independent valuation experts. - Compared the carrying amount of inventory against the Group's estimate of net realisable value as at 30 June 2018.

WI@E@T@
Financial significance ofthe inventory balance in a the Consolidated Statement of Financial Position. The subsequent impact to FFO from the disposal a of inventory where cost is determined by the fair value at the date oftransfer.	For properties transferred from investment a properfy to inventory, we: - Performed the procedures outlined in the key audit matter: Valuation of inuestment properties in assessing the appropriateness ofthe fair value at the date oftransfer. - Inspected the investment committee paper and board approval to ensure that the transfer was executed in accordance with the approved terms.
Carrying rrlmount ofind.efinite life tnantagetnent rights (Refer to Note t8)	To assess the impairment model used to determine the recoverable amount, we performed the following audit procedures, amongst others:
At 3o June zor8 indefinite life management rights (management rights) amounting to \$286 million (zot7: \$286 million) were recognised by the Group (included in the intangible assets balance). In accordance with the requirements of Australian Accounting Standards, indefi nite life management rights are not amortised and are tested at least	Assessed whether the division of the Group's management rights into cash generating units (CGU), was in line with the Australian Accounting Standards and consistent with our knowledge of the Group's operations and internal Group reporting. o Tested the mathematical accuracy of each impairment model's calculations.
annually for impairment. The Group performed impairment testing of the management rights by comparing the recoverable amount of the management rights to their carrying	e Evaluated the Group's methodology and selected inputs and assumptions in the impairment model, such as discount rate, revenue and expense growth rates by comparing to observable market expectations.
amount. The Group concluded that management rights were not impaired. We considered the carrying amount of management rights a key audit matter given the: r Financial significance of the balance in the Consolidated Statement of Financial Position	o Tested that forecast cash flows used in the impairment model were consistent with the most up-to-date budgets approved by the Board. For cash flows beyond year three not covered by formal budgets, we assessed the growth rates applied by comparing to observable market expectations.
r Significant judgement required by the Group in estimating the recoverable amount of management rights	r Evaluated the Group's historical ability to forecast future cash flows by comparing budgets to reported actual results.
r Sensitivity of the Group's assessment to changes in key assumptions such as growth rates, discount rates, and future cash flows.	Considered the Group's sensitivity analysis on key assumptions used in the impairment model to assess under which assumptions an impairment would occur and whether this was reasonably possible.
	e Together with PwC valuation experts we considered whether the discount rate applied was consistent with observable market expectations.

8@@E@TE

Deuelopmentreuenue (Refer to Note to)

The Group recognised \$r+S.6 million of property development revenue for the year ended 30 June 2018 (zot7 : gzz4.3 million).

Property development revenue includes proceeds from the sale of inventory and revenue earned through the provision ofdevelopment services in relation to assets sold to third parties.

Revenue earned on the provision ofdevelopment services is recognised on a percentage of completion basis as described in Note ro. The percentage of completion is assessed by reference to the proportion of contract costs incurred and the estimated costs to complete the project.

We considered development revenue a key audit matter given the:

• . Significance of development revenue to the Consolidated Statement of Comprehensive Income and FFO.
• . Significant judgement required by the Group in determining the costs to complete each project which impacts the timing of revenue and profit recognised over the life ofthe project.
• . Complexity ofsales contracts related to the sale of inventory and the resulting timing of revenue recognition.

We performed the following audit procedures, amongst others, over revenue earned through the provision of development services:

• r Inspectedthe development contractto assess whether the revenue recognised by the Group during the year is in accordance with the revenue recognition criteria set out in Australian Accounting Standards.
• . Recalculated the revenue recognised by reference to the project's percentage of completion. We assessed the appropriateness ofthe percentage of completion ratio by agreeing a sample of the project's costs to third parly support.
• . Agreed revenue recognised to the underlying contract and supporting evidence ofcash settlement.

We performed the following audit procedures, amongst others, over proceeds from the sale of inventory:

• r Inspected the relevant terms ofthe sales contract to assess whether revenue from the sale of inventory was recognised in accordance with the contract and the requirements ofthe Australian Accounting Standards.
• r Agreed the settlement proceeds to the bank statement.

Other information

The Directors of the responsible entity of the Group, Dexus Funds Management Limited (the Directors), are responsible for the other information. The other information comprises the information included in the financial report for the year ended 30 June zor8, including the Directors' Report, but does not include the Financial Statements, related note disclosures and our auditor's report thereon.

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the financial report

The Directors 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 zoot and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the Directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level ofassurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions ofusers taken on the basis ofthe financial report.

A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at:

http://www.auasb.gov.au/auditors_responsibilities/arr.pdf. This description forms part of our auditor's report.

P@

PricewaterhouseCoopers

Matthew Lunn Partner

Sydney 14 August 2o1B