News: DXS Dexus Sees FY25 AFFO Of 44.5-45.5 Au Cents Per Security, page-14

Dexus is cautious about data centers as an investment given current assetvaluations, Chief Executive Ross Du Vernet said, in contrast to other property ownersscrambling to capitalize on the AI and cloud-computing boom. Dexus is seeing attractive opportunities in the industrial, infrastructure andalternative investment sectors as it seeks to reduce the dominance of office towers inits property portfolio. The company prefers to co-invest alongside capital partners, andDu Vernet said some of the opportunities being explored are with new clients. But data centers aren't a priority for reasons that include them being more "conduciveto a regional-type footprint" rather than fitting Dexus's tight geographical focus, DuVernet said in an interview. Dexus's assets are typically clustered in or around thecenters of major cities such as Sydney and Melbourne. "One of the challenges for us is it's not clear at a macro level how we are going todrive exceptional performance in data centers," said Du Vernet, who replaced long-timeCEO Darren Steinberg in March. Other property companies are bullish. Goodman this month revealed that data centersmake up 40% of a development workbook worth around 13 billion Australian dollars,equivalent to US$8.75 billion. Infratil recently said that the valuation of its CDCdata-center business in Australia rose by around 530 million New Zealand dollars,equivalent to US$323 million, in the three months through June. While Du Vernet said client demand for data centers would have made them the easiestfund to raise right now, it's arguable whether the market for those assets has become toohot. "We're cautious on pricing and metrics as an investment," Du Vernet said. Dexus earlier reported a net loss of A$1.58 billion in the 12 months through June,widening from a A$752.7 million loss a year earlier. The result reflected a A$1.90billion decline in valuations of its investment properties as capitalization ratessoftened more. Funds from operations fell by 4.8% to A$703.4 million. Commercial real estate is typically valued based on its capitalization rate, or theannual net income produced by a property divided by the purchase price. Like bond yields,rising cap rates indicate falling values, and vice versa. Dexus said the weighted averagecap rate across its total portfolio expanded by 42 basis points to 5.87% between Januaryand June. Still, Du Vernet said the market appeared to be approaching a bottom and that a buyers'strike over the past 3 to 4 years may be ending. Dexus wants to sell assets worth around A$2 billion over the next three years. DuVernet said most, but not all, of the properties on the block will be offices as Dexusaims to have no one sector representing more than 50% of its investment portfolio.Currently, offices account for roughly two-thirds of the portfolio. "Importantly, for every asset we sell we're actually developing a better one," DuVernet said.