Dexus Industria REIT (ASX:DXI) reported its first half FY2026 result with fund manager Jason Weate highlighting continued leasing strength, progress across the ASCEND at Jandakot development pipeline, and an upgrade to full-year guidance driven primarily by pre-leasing at Glendenning.
Portfolio overview and investment proposition
Weate said the trust offers investors exposure to a diversified portfolio of more than 88 industrial assets valued at approximately AUD 1.4 billion, with access to about 80% of Australia’s population within 60 minutes of the asset base and strong exposure to infill markets. He framed DXI’s strategy around three objectives: owning a strategic portfolio capable of delivering secure and growing income, actively managing the portfolio to maximize value-adding opportunities, and maintaining a prudent balance sheet to invest opportunistically through the cycle.
First half FY2026 financial performance
For the half year, DXI delivered funds from operations (FFO) of AUD 28.2 million, or AUD 0.089 per security, and distributions of AUD 0.083 per security. Weate said strong like-for-like income growth and leasing outcomes more than offset reduced income following the sale of BTP, while higher net finance costs—driven by hedge and floating rate increases—contributed to a marginal decline in FFO per security compared with the prior period.
Key portfolio metrics cited for the period included:
- Like-for-like income growth: 7.4%, supported by embedded escalations and leasing outcomes
- Occupancy: 99.7%, with Weate noting near-term expiries were manageable and under-renting could be unlocked over the medium term
- Contracted rental increases: approximately 87% of income subject to contracted rental increases above 3%
DXI also reported positive valuation momentum, with a valuation uplift of AUD 14.8 million over the half (described as a 1% increase on prior book values), driven by leasing outcomes and development progress at Jandakot. Weate said capitalization rate expansion slowed to three basis points across the industrial portfolio versus 11 basis points in FY2025, which he said reflected stabilizing market conditions and continued investor demand for industrial assets.
Balance sheet and debt update
Look-through gearing was 26.2% at 31 December, which management said remained below its target range and provided flexibility for capital deployment. Weate said gearing is expected to increase by about 2.3% following the Moorebank acquisition. He added that even if the trust fully debt-funded its current development pipeline, gearing would remain within its target range, underscoring balance sheet capacity.
During the period, DXI refinanced and extended AUD 150 million of debt, which Weate said reduced margins by approximately 7–8 basis points and eliminated short-term refinancing risk, with no maturities until FY2028. In the Q&A, he also said a new debt facility taken on with the Moorebank acquisition came at a margin about 15 basis points inside what management considers to be market pricing.
Leasing, acquisitions, and development pipeline progress
In the stabilized portfolio, management secured 13,500 square meters of leasing, with renewal incentives “below market,” and reported positive lease spreads on renewals of 7.6% alongside average rent reviews of 3.3%.
On acquisitions, Weate said proceeds from the divestment of BTP in Queensland had been fully redeployed into assets across three urban infill locations: Glendenning, two assets in Dandenong South, and the acquisition of the remaining 50% interest in Moorebank (which he said had been released to the market the day before the call).
Management described each acquisition’s rationale:
- Glendenning: a repositioning opportunity in land-constrained northwest Sydney. In Q&A, Weate said DXI secured a 3PL “last mile” tenant attracted by the site’s proximity to the M7 and relocating from Smithfield. The trust is bringing forward lease-up with minor refurbishment while retaining optionality for a future multi-unit repositioning supported by an existing development approval (DA). Capex for the minor works was estimated at around AUD 4 million, compared with a previously contemplated AUD 10 million scheme for the multi-unit facility.
- Dandenong South: a “reversion play,” acquired at a 6% cap rate with around 20% under-renting that the trust expects to have an opportunity to unlock in about two years.
- Moorebank: intended to lift Sydney weighting from 6% to 10%. Weate said consolidating ownership of a “brand new asset” provides value and includes a rent guarantee intended to protect FY2026 earnings as leasing continues. He noted four of six units were leased, with strong inquiry on the remaining units, but said tenant decision-making has slowed, incentives have increased, and macro uncertainty (including interest rates, elections, and tariffs) has weighed on leasing timelines.
On development, Weate described Jandakot as a AUD 225 million investment opportunity and an important driver of future earnings growth. He said South Perth rents have grown at over 14% per annum since DXI acquired the site, outpacing construction cost growth, which he said underpins development returns. Management cited yields on cost improving from about 5% initially to an expected 6.6% on the committed pipeline.
For the half, completions at 19 and 21 Pilatus Street delivered fully leased yields on cost of 7.4% and 7.1%, respectively. The committed pipeline spans seven projects at Jandakot, with 77% of income already pre-leased.
Guidance upgrade and market commentary
DXI slightly upgraded full-year FY2026 guidance to FFO of AUD 0.174 per security and distributions of AUD 0.166 per security, “barring unforeseen circumstances.” In Q&A, Weate said the primary driver of the upgrade was secured pre-leasing at Glendenning, alongside additional leasing at Moorebank and a delay to the second tranche of the BTP sale. He said these factors would more than offset an approximately 60 basis point increase in second-half floating rates since guidance was set.
Asked about the implied first-half skew in earnings, Weate attributed it to higher expected floating rates in the second half and the benefit of BTP’s “high-yielding income” in the first half that would not repeat in the second half. He said DXI assumed a second-half floating rate of 4.1%, and described the trust’s all-in cost of debt as 4.9% in the first half, expected to “trickle up” to just over 5% for the full year.
On market fundamentals, Weate said face rents are expected to continue growing across most sub-markets, though at a normalized pace with greater variation by location. He said infill locations continue to outperform non-infill, aligning with DXI’s portfolio exposure, and argued that feasibility constraints in Sydney and Melbourne could limit future supply. He cited commentary that rents in key submarkets may need to rise by 10%–36% for new development to become viable, and said speculative completions were forecast to decline by about 44% over 2026 and 2027.
Weate also noted DXI was trading at what he described as a significant discount to net tangible assets (NTA). In response to a question about a potential buyback, he said it remained an option under consideration as part of capital allocation planning, but management was weighing the relative value of opportunities and the potential drawbacks of shrinking the vehicle.
About Dexus Industria REIT (ASX:DXI)
Dexus Industria REIT (ASX code: DXI) is a listed Australian real estate investment trust which is primarily invested in high-quality industrial warehouses. At 31 December 2022, the fund's portfolio is valued at $1.6 billion and is located across the major Australian cities, providing sustainable income and capital growth prospects for security holders over the long term. The fund has a target gearing range of 30 40%. Dexus Industria REIT is governed by a majority Independent Board and managed by Dexus (ASX code: DXS), one of Australia's leading fully integrated real estate groups, with over 35 years of expertise in property investment, funds management, asset management and development.
