Risk Reward Update

Research evidence excerpt

Risk Reward Update

UpdateM

RiskRisk RewardReward– Dexus-(DXS.AX)Dexus (DXS.AX)

Cheap valuation, but weak FFO growth; UW

PRICE TARGET A$6.40 UNDERWEIGHT THESIS

We derive our PT via a 10/50/40 weighting to our Bull/Base/Bear cases, given our view that DXS collects c.70% of income from Office

asset-heavy Office owners may struggle to excel, even if the Office cycle recovers, because of rent, of which 50-55% is from Sydney

incentives/abatements. Each is derived using DCF (75%) and NAV (25%). CBD/fringe assets. Thus DXS's stock is

driven by the state of the Sydney office

DCF (Base Case A$6.36) is driven by 9.9% CoE (0.9 beta), and a 3% terminal growth rate. market.

NAV (Base Case A$8.64) is premised on a flat cap rate across the Office and Industrial Our concern for the next 12 months is that

portfolios. Office is unlikely to have any material

recovery, with incentives staying high, even

A$6.53 if face rents were to improve, especially as

Consensus Price Target Distribution A$6.07 A$7.03 vacancy remains above the long-term

MS PT average. In the medium term, we are

Source: Refinitiv, Morgan Stanley Research Mean Morgan Stanley Estimates concerned about broader cash flow risks

stemming from refurbishment requirements.

RISK REWARD CHART We are also cautious on a few stock-specific

issues for DXS, such as slowness around

overall funds management growth, and

AUD A$9.10A$9.10(+56.90%)A$9.10(+56.90%)(+56.90%) Atlassian HQ dilution/ recapitalisation.

8 Consensus Rating Distribution

30% Overweight

A$6.40A$6.40(+10.34%)A$6.40(+10.34%)(+10.34%)

6 A$5.80A$5.80A$5.80 60% Equal-weight

10% Underweight

A$5.10A$5.10(-12.07%)A$5.10(-12.07%)(-12.07%) MS Rating

Source: Refinitiv, Morgan Stanley Research

Risk Reward Themes

Disruption: Negative

0 Pricing Power: Negative