Operating and Financial Review
The Group’s financial performance for the year ended 30 June 2018 is summarised in the following section. In order to fully understand the results, the Annual Report and full Financial Statements included in this Financial Report should be read in conjunction with this section.
Five year performance
| FY18 | FY17 | FY16 | FY15 | FY14 | |
| Funds from Operations (FFO) ($m) | 653.3 | 617.7 | 610.8 | 544.5 | 446.6 |
| Adjusted FFO (AFFO) ($m) | 485.5 | 439.7 | 413.9 | 369.8 | 310.7 |
| Net profit after tax ($m) | 1,728.9 | 1,264.2 | 1,259.8 | 618.7 | 406.6 |
| FFO per security (cents) | 64.2 | 63.8 | 63.1 | 59.5 | 41.71 |
| AFFO per security (cents) | 47.7 | 45.4 | 42.7 | 40.4 | 37.91 |
| Distribution per security (cents) | 47.8 | 45.47 | 43.51 | 41.04 | 37.561 |
| Return on Equity (%) | 19.8 | 18.2 | 19.3 | 11.5 | 6.7 |
| Return on Contributed Equity (%) | 7.6 | 7.6 | n/a | n/a | n/a |
| One-Year Total Security holder return (%) | 7.5 | 10.1 | 30.3 | 15.8 | 9.9 |
| Net tangible asset backing per security ($) | 9.64 | 8.45 | 7.53 | 6.68 | 6.361 |
| Gearing (look-through) (%) | 24.1 | 26.72 | 30.7 | 28.5 | 33.7 |
| Duration of debt (years) | 7.0 | 5.6 | 5.5 | 5.7 | 5.2 |
| Customer satisfaction score (out of 10) | 8.3 | 8.0 | 8.0 | 7.9 | 7.7 |
| Females in Senior Management roles (%) | 35 | 33 | 29 | 26 | 26 |
| Listed office portfolio average NABERS Energy rating (stars) | 4.9 | 4.8 | 4.8 | 4.7 | 4.6 |
Review of Operations
Dexus has adopted Funds from Operations (FFO) as its underlying earnings measure which has been defined in accordance with the guidelines established by the Property Council of Australia for its reporting with effect from 1 July 2014.
In accordance with Australian Accounting Standards, net profit includes a number of non-cash adjustments including fair value movements in asset and liability values. FFO is a financial measure of real estate operating performance and is determined by adjusting net profit after finance costs and taxes for certain items which are non-cash, unrealised or capital in nature.
The Directors consider FFO to be a measure that reflects the underlying performance of the Group.
The following table reconciles between profit attributable to stapled security holders, FFO and distributions paid to stapled security holders.
| 30 June 2018 ($m) | 30 June 2017 ($m) | |
| Net profit for the year attributable to stapled security holders | 1,728.9 | 1,264.2 |
| Net fair value gain of investment properties | (1,201.8) | (704.7) |
| Impairment of inventories | 0.6 | - |
| Net fair value (gain)/loss of derivatives and interest bearing liabilities | (8.3) | 3.6 |
| Net (gain)/loss on sale of investment properties | 0.9 | (70.7) |
| Incentive amortisation and rent straight-line3 | 101.4 | 100.1 |
| Coupon income, rental guarantees received and other | 17.7 | 12.7 |
| Amortisation of intangible assets | 5.5 | 4.5 |
| Transaction costs | 1.1 | - |
| Non-FFO tax expense | 7.3 | 8.0 |
| Funds from Operations (FFO)4 | 653.3 | 617.7 |
| Retained FFO5 | 166.9 | 166.0 |
| Distributions | 486.4 | 451.7 |
| FFO per security (cents) | 64.2 | 63.8 |
| Distribution per security (cents) | 47.8 | 45.47 |
| Net tangible asset backing per security ($) | 9.64 | 8.45 |
- In November 2014, Dexus completed a one-for-six security consolidation and this number has been adjusted to reflect this.
- FY17 pro forma gearing is adjusted for post balance date acquisitions. Actual gearing was 22.1%.
- Including cash, rent free and fit out incentives amortisation.
- Including Dexus’s share of equity accounted investments.
- Based on Dexus’s distribution policy to payout in line with free cash flow. The distribution payout ratio equated to 74.4% of FFO in FY18 and 73.1% of FFO in FY17.