Centuria Capital Group (CNI) Earnings Call Transcript & Summary

Thank you all for standing by, and welcome to the Centuria Capital Group Half Year '22 Results Briefing. [Operator Instructions] I'd now like to hand the conference over to John McBain, the joint CEO of Centuria Capital Group. Thank you. Please go ahead.

Good morning. Thank you for joining us. I'm John McBain, joint CEO of Centuria Capital. And together with my fellow joint Chief Executive, Jason Huljich; and Chief Financial Officer, Simon Holt, we have the pleasure in presenting Centuria Capital's 2022 financial year interim results. Centuria is a relatively complex group. And to operate the business efficiently, each member of the senior team specializes in a specific area. Accordingly, I will present the group's strategy and corporate information; Simon will present our financial information; and my fellow Chief Executive, Jason Huljich, will present the real estate and funds management information. Starting on Slide 2, Centuria pays its respect to the traditional owners of the land in Australia and New Zealand where we operate, to their respective cultures and to the elders past, present and emerging. Moving to Slide 4. This slide illustrates how Centuria has grown to be a leading Australasian real estate funds manager. Group assets under management were $80 billion, exceeding $20 billion, and with the experience and potential to increase this pool of assets meaningfully over time. The slide summarizes how Centuria has executed on its strategy, delivering organic growth, together with strategic corporate acquisitions that provide exposure to new property asset classes and geographies. It's a well-balanced platform with approximately 35% weighted to listed funds and 62% unlisted funds and 5% to investment bonds. The strong weighting to unlisted funds is illustrative of Centuria's long-standing track record of consistently delivering high-quality investment opportunities throughout the unlisted investor distribution network. Their real estate funds are diversified by geography, by fund type, by capital source and by asset class. Moving to Slide 5. Our larger platform generated strong results for securityholders, and HY '22's performance was achieved despite the COVID-19 backdrop. Last week, we announced our upgraded operating units of $0.145 per security, 9.8% above our initial guidance of $0.132 and just under 21% above our FY '21 operating earnings of $0.12 a security. We reaffirm our distribution guidance for the full year of $0.11 per security. Significantly, Centuria delivered a 12-month shareholder return of approximately 38%, more than 17% above the ASX 200 index and 26% above the ASX200 AREIT index. We achieved our platform growth through high-quality real estate acquisitions across 127 properties, totaling $2.5 billion, the continuing impact of the Healthcare, Augusta and Primewest acquisitions, a strong increase in our development pipeline with $2.2 billion and portfolio revaluation of just over $600 million. Jason will elaborate on these metrics later. Turning to Slide 6. As mentioned, HY '22 has been a good example of Centuria's, I believe, execution against our strategy. Organic growth has been generated across all 7 real asset classes that make up the platform being the Centuria's office, industrial, health care, daily needs and large-format retail, agriculture and real estate finance. In line with our strategy, this organic growth was aided by strategic corporate mergers and acquisitions that provided access to new markets, broader distribution lists, new real estate asset classes and expertise, allowing us to confidently diversify the property funds offering. Operating businesses acquired in recent years contributed strongly to the group's AUM growth during HY '22, including our New Zealand operations, which increased 13% to $2.6 billion, as well as health care and Centuria Bass Credit. Our real estate platform is highly scalable and provides us with a range of growth opportunities. Centuria's ever-increasing acquisition profile is a testament to this engine room which drives our growth. Jason runs these highly effective capital transactions and assets and funds management teams, and he will discuss this in more detail shortly. Matching this asset growth, we have prudently utilized our distribution networks to provide a range of investment funds to our listed and unlisted distribution networks. Throughout an undeniable testing period, Centuria's investor base, built up over more than 20 years, has not only continued to support our products, but have supported ever larger acquisitions. Turning to Slide 7. Since FY '17, Centuria has generated a 45% compound annual growth rate. Again, this has all been achieved by our focus on organic growth from real estate acquisitions, active real estate management and fund generation accelerated by strategic corporate measures. While in previous reporting periods the growth is centered on corporate acquisition, in HY '22, our organic acquisitions has taken center stage. Examples of this expansion, organic expansion include trophy assets, such as an A-grade, a recently completed building in 101 Moray Street, South Melbourne; a super prime last mile distribution center in the core Sydney industrial market of Fairfield; our New Zealand aged care portfolio including 38 assets; and an agricultural stake leased to Australia's largest Glasshouse operator, Flavorite hydroponic tomatoes in Warragul Victoria. In addition to our property acquisitions, our development pipeline also assisted organic growth, providing fit-for-purpose, modern, sustainable assets for our listed and unlisted funds. Again, Jason will elaborate on this important growing aspect of our business shortly. On to Slide 8. Despite COVID disruptions, our most recent corporate acquisitions have been integrated in a timely and effective manner, with Primewest, Centuria Bass and our New Zealand team now fully merged into our Centuria platform. These new entities have provided increased capital sources, new real estate asset classes and specialized professionals within the industries and have contributed meaningfully to the group's earnings and profitability. Importantly, the strong alignment [ of these leading ] businesses provide Centuria a supportive balance sheet, management services and in-house expertise from Centuria Capital. Slide 9. In addition to the 38% total shareholder return generated through the past 12-month period, I'm pleased to report 165% total shareholder return for the past 3 years to December '21. This chart simply demonstrates that our strategies and execution have outperformed against the relevant S&P ASX indices over a 3-year period. Centuria's performance has also outperformed the majority of our broader AREIT peers over a 1- and 3-year period. Slide 10. As announced during our Annual General Meeting in November '21, Centuria is focused on its commitment to environmental, social and government initiatives by providing flexible and relevant sustainability framework that's appropriate for our business. This framework encompasses 3 broad areas: conscious of climate change, our focus on environmental considerations; valued stakeholders, our social responsibilities; and responsible business principles which delivers our social -- our governance directives. Last October, we published our first sustainability report. And as part of this report, we provide initial disclosures aligned to TCFD. Since then, we've also provided disclosures aligned to the global reporting of GRI, sustainability reporting standards, and delivered Centuria's second modern slavery statement. Thank you, and I'll now hand you over to our Chief Financial Officer, Simon Holt, who will walk you through our financial results. Simon?

Thank you, John. Slide 12 shows our operating earnings and distributions for the half year as well as the guidance for the full year 2022 financial year. It is my pleasure to report that the group delivered a first half statutory net profit after tax of $112.7 million with an operating NPAT of $58.7 million, which represents a 73% increase on the corresponding period. An operating EPS of $0.074 per security was delivered along with a distribution of $0.055 per stapled security for the half. As John mentioned earlier, we recently upgraded our FY '22 operating earnings guidance to $0.145 as a result of momentum generated across acquisitions, developments, revaluations and performance fees during the first half. The upgraded guidance represents a 20.8% increase above FY '21 operating EPS of $0.12 and -- sorry, a 9.85% increase over our initial FY '22 operating EPS forecast of $0.132. I'm also pleased to reaffirm the group's FY '22 full year distribution guidance of $0.11 per stapled security, representing an increase of 10% from FY '21. Distributions continue to be underpinned by sustained growth in recurring revenues now accounting for 87% of the group's revenues. Moving to Slide 13, which outlines the key components of our earnings. Profits attributable to our Property Funds Management segment increased 133% over FY '21, reflecting the benefits of organic and past acquisitive growth across the platform. This growth was achieved by a significant transactional activity, in particular across the health care and industrial sectors as well the merger with Primewest, which has proved transformational for the group. Performance fees of $19.1 million were recognized at the half, reflecting our performance delivered by a number of our unlisted funds during the half year. However, despite a 40% increase in dollar terms, our operating EPS -- on an operating EPS basis, performance fees for the half year '22 remain in line with the prior corresponding period, further highlighting the growth in the group's operating EPS being underpinned by recurring revenues. It is also important to note that a further $24.8 million of performance fees remain latent with our unlisted portfolio and have yet to be recognized. As an external fund manager, Centuria continues to co-invest in a number of funds it operates alongside fund investors. This brings strong alignment with our listed REITs: CIP, COF, and APL in New Zealand, in addition to providing our business with a continued source of recurring revenue. I'm pleased to report that during the half year '22, the group's co-investment segment yielded an operating profit of $22.5 million, up 29% from the prior period. We have continued to invest in our development business by increasing head count to support our shift to a more sustainable development management fee business model and the expected future growth of the segment. The operating profit from this segment has reduced by $0.3 million as a result of the completion of a number of projects in the prior period, which crystallized development profits. I am pleased to report that the Development segment had a strong pipeline of $2.2 billion of current and upcoming known projects, with a significant increase in development management fees and is, therefore, expected to be a pillar of future profitability and continued growth for the business. The Property & Development Finance business segment, which represents the group's 50% interest in Centuria Bass Capital, which has contributed $1.9 million to operating earnings for the group for the half year. Centuria's performance is pleasing -- has pleasingly exceeded budget, benefiting the group's extensive property funds management platform and access to a larger combined investor base. The unitization of the group's legacy capital guaranteed products occurred during the half within the investment bond segment. This led to a one-off recruitment of prior period management fee rebates contributing to the segment's increased profitability to $3.2 million for the half year. The transition of our capital guarantee product into more contemporary unitized offerings should improve returns for our policyholders and increase margins for our investment bond division. Moving on to the corporate segment. In the midst of the global pandemic, the group applied for and received JobKeeper payments from the government for parts of FY '20 and FY '21. At the time, the group applied for and was granted these payments due to the inherent uncertainty in market conditions and unknown impact on our business. However, due to the sustained success of our business across the pandemic, we have elected to make a voluntary repayment of all JobKeeper payments received. This repayment resulted in additional $2 million expense in the corporate segment against receipts of $1.1 million in the comparative period. I would like to highlight that excluding the impact of JobKeeper, corporate expenses as a percentage of operating profit before interest and tax, have reduced from -- when compared to FY '21. The increase in operating tax expense from $5.7 million in FY '21 to $12.8 million in the current period is a reflection of the increased operating taxable profits generated by the business. Moving to Slide 14, which outlines our revenue mix and how the business continues to generate its profits with higher contributions from recurring revenue sources and less reliance on periodic performance fees. Transactional income comprising of acquisition, financing, underwriting and sales fees was up 400% for the half year compared to half year '21. This is a great result, underpinned by $3.5 billion of property acquisitions and real estate finance activity during the period. The graph on this slide shows how the group's revenue mix has evolved and how recurring revenues, in particular, the management fee revenue, are now the primary contributor to total revenues of the group. Looking at Slide 15. We are pleased to report that our reinvestment strategy has continued to strengthen the group's balance sheet with a net asset value per security increasing from $1.92 at 30 June to $2 at the end of the half year. The group has immediate access to available funding of $241 million, comprised of $151 million of cash reserves and $90 million of undrawn debt. This funding provides the group with capacity to explore and execute on future growth initiatives and provide continued balance sheet support for our growing unlisted business. In managing our capital structure, the group recently established $100 million secured revolving floating rate facility with a 3-year tenor to provide added flexibility to finance short-term opportunities and initiatives. At the end of the year, the group had drawn $10 million from this facility and has brought our weighted average maturity profile for the group to 3.8 years. The group's operating gearing ratio has increased from 3.9% at the end of FY '21 to 8.3%. However, our interest cover ratio continues to improve at 9.4x compared to 8.2x for FY '21 as the group benefited from an increase in recurring operating EBIT. This year, due to the volatility in markets and bond rates, we've included information about debt across the entire platform on Slide 16. Over the last couple of years, we've been working to diversify our lender pool with the last 6 months bringing 7 new lenders across the platform. With $7.5 billion of debt facilities across the group and more than 150 funds, the platform has a weighted average debt duration of 2.8 years, which is representative of a typical bank lending market term up to 5 years in Australia and up to 3 years in New Zealand. The platform is hedged within the funds to a weighted average amount of 53% at 31 December. And it has a weighted average duration of 2.6 years, which is consistent with our debt duration and is in line with our policy of not hedging beyond the debt duration of a fund. I'll now hand over to Jason, who will take you through CNI's divisional highlights.

Thanks, Simon. I will start on Slide 18, which illustrates our $19.3 billion diversified real estate platform by geography, asset sector, fund type and capital source. Since half year '21, this platform has more than doubled from $9.3 billion. During half year '22, our real estate platform expanded by 17% due to strong organic growth. Having [indiscernible] of the Australia and New Zealand commercial real estate markets enabled significant transactional velocity, meaning our teams could act on acquisition opportunities regardless of border closures and COVID impacts. While the portfolio is skewed towards the office, industrial and health care markets, significant growth was also achieved within retail, agriculture and debt funds, which now comprise 31% of our real estate portfolio. Centuria's range of funds continue to expand throughout the period, so the group's platform has a 65% weighting towards unlisted real estate, which provides attractive fee cards and strong growth opportunities. Slide 19 is a closer examination of the 7 asset classes we invest into. Centuria focuses its office investment within metropolitan and near city markets that provide affordable rents and excellent connectivity via public transport and road arterials. This is a modern office portfolio that provides strong sustainability credentials. The office portfolio expanded 4% during the period. Our industrial portfolio is concentrated within urban infill supply-constrained markets within close proximity to large population and lend themselves to expanding e-commerce sector as well as onshoring supply chain operators. Our industrial assets largely provide opportunities to deliver strong returns and attractive rental reversion. During the half year, the industrial portfolio expanded 25%. The health care portfolio is focused on cost-effective solutions that deliver better patient care through customized real estate that is delivered for our operational partners. These are institutional grade, short stay and day hospitals, mental health facilities, medical centers, specialist centers and aged care facilities. The health care platform increased 55% during the period. The daily needs in large-format retail portfolios both expanded by 15% [indiscernible] respectively. These assets focus on nondiscretionary, convenience-based retail or trends aligned with household needs backed by deep capital sources, particularly institutional mandates and wholesale investors. Our unlisted real estate debt fund doubled during half year '22 to $600 million. These funds provide nonbanking finance to the property sector through predominantly first-tier loans. The credit is largely used for construction funding, land settlement, bridging finance and residual stock solutions. And finally, our agriculture portfolio increased by 200% during the half year. At present, the portfolio comprises grain and crop-based assets geographically dispersed across Australia. We're executing opportunities to deliver sale and leaseback solutions to enable farmers to expand their operations, which are underpinned by long-term lease covenants and triple net lease terms. Slide 20 illustrates our impressive transactional velocity which generated significant organic growth during the period. Our strategic acquisitions have deliberately targeted assets that: one, unlock off-market opportunities; and two, provide attractive lease structures, such as triple net leases and/or lengthy sale and leaseback terms. $2.5 billion of gross real estate acquisition and finance activity was executed throughout the half year. Approximately 2/3 of the acquisitions were secured for our unlisted funds, with the remaining 1/3 for our listed entities. Centuria has a proven track record of securing high-quality assets ranging between $20 million and $450 million, predominantly in off-market or select campaign situations. We were most acquisitive across the industrial and health care verticals during the period, $674 million of industrial assets were acquired across Australia and New Zealand. Within Australia, a significant portion of these assets are joint existing properties we already own, creating land consolidation and development optionalities. On the health care front, more than $600 million of assets were secured, with the lion's share transacted within November and December '21 alone. This includes a 38-asset aged care portfolio operated by the reputable Heritage Life Care. The portfolio was secured on a 30-year triple net lease sale and leaseback. Additionally, modern office assets underpinned by quality tenant and tenant covenants were secured for $411 million during the period. Slide 21 outlines Centuria's ability to effectively manage assets within our portfolio, thanks to our integrated commercial property services platform and active management approach. Centuria's portfolio comprises 384 assets with approximately 2,500 tenant customers. Average rent collections totaled about 98% during the period. This impressive result was complemented by more than 245,000 square meters of leases agreed across 245 individual transactions, accounting for 6.4% of our total portfolio's lettable area. The portfolio's strength is underpinned by high-quality tenant customers, including federal, state and local governments, as well as household names such as Woolworths, Coles, Wesfarmers, Telstra, Arnott's, Visy, Seven West Media and Healius. Collectively, our Australasian platform provides a 5.9-year weighted average lease expiry and approximately 96% occupancy. Turning to development on Slide 22. During the period, we evolved our focus from one-off development profit to development management fee income, the latter providing a more consistent source of income. Centuria significantly expanded their development pipeline to $2.2 billion, which help support our platform's organic growth by generating brand-new stock for our listed and unlisted funds. Centuria leverages its balance sheet to support projects through embryonic stages of development or from specific projects where development profits may be realized. We're also focusing on creating fund-through outcomes by partnering with quality developers. About 43% of our development pipeline comprises customized health care real estate, while Industrial makes up roughly 16% and office a further 15%. We believe our development pipeline will continue to grow, which will ensure increased development fee income as well as high-quality assets for our funds. Let's take a closer look at our unlisted real estate platform on Slide 23. Unlisted funds expanded 15% during half year '22 to $12.6 billion, accounting for more than 65% of our AUM. This part of the platform remains an important component of our overall business with very attractive fee cards. More than 32% of our unlisted AUM has no fund expiry review date, and 62% has expiry view dates at or beyond 5 years. Across the unlisted platform, we service more than 12,000 retail, wholesale and institutional investors. Our unlisted funds generated more than $19 million in recognized performance fees over the period, with a further circa $25 million in latent underlying performance fees. Slide 24 demonstrates the increasing breadth of fund types and asset offerings within our unlisted division. This includes single asset fixed term office funds, such as the Centuria government income property fund #1 and #2, which are assets predominantly leased to government departments. We also source new JV partners for bespoke investment opportunities, such as our 50-50 partnership with MA Financial on the $166 million 25 Grenfell Street office asset in Adelaide. And on the retail front, we launched a wholesale fund underpinned by the $71 million Northgate shopping center in Geraldton Western Australia. Our multi-asset unlisted funds suite further broadened throughout the period. This includes Centuria Healthcare Property Fund, which grew to $563 million, the Centuria New Zealand Industrial Fund, which increased to NZD 574 million and the new Centuria New Zealand Healthcare Property Fund, which is underpinned by the Heritage-operated aged care portfolio mentioned earlier. Slide 25 outlines our institutional mandates and unlisted debt funds. Through our merger with Primewest, Centuria now oversees 2 mandates on behalf of an international sovereign wealth fund. This includes a $930 million daily needs retail mandate, which has filled more than $0.5 billion worth of assets, and a $600 million office mandate, which has further opportunities to expand. We continue to scope opportunities for our $500 million health care mandate, and we have settled a $272 million (sic) [ $276 million ] 140 St. Georges Terrace office acquisition, which was secured as a joint venture with Blackrock. The nonbank finance sector continues to grow strongly, and our real estate debt funds had doubled to more than $600 million. During the period, we launched the open-ended Centuria Bass Credit fund, which has received significant take-up. Centuria Bass has increased its loan book by 270% to $422 million, and its open-ended funds increased 17% to $207 million since 31 December 2021. These credit funds provide another investment option for our analyst investors and adviser networks. Finally, let's turn our attention to the listed entities on Slide 26. And Centuria's listed platform expanded 22% during the half year to $6.7 billion across 3 individual REITs. First, the ASX-listed COF is Australia's largest listed pure-play office REIT with 23 high-quality office assets worth about $2.3 billion. During the period, it acquired $273 million of high-quality office assets and achieved significant leasing success across more than 18,600 square meters. COF provided an upgraded FY '22 FFO guidance of $0.183 per unit and reiterated its forecast distribution guidance of $0.166 per unit. COF increased its market relevance during the period with its inclusion in the FTSE EPRA NAREIT index. COF is also part of the ASX 300 Index. CIP largest listed pure-play industrial REIT with 84 industrial properties worth $4 billion. During the period, it acquired 21 assets worth $680 million and leased more than 109,000 square meters of space. CIP provided an upgrade FY '22 FFO guidance of no less than $0.182 per unit and reiterated its distribution guidance of $0.173 per unit. CIP is part of the S&P/ASX 200 Index and the FTSE EPRA NAREIT Global Index. Finally, the NZX listed Asset Plus Limited is underpinned by 6 high-quality assets worth NZD 300 million. Approximately 68% of the REIT's income is derived from government listed and multinational tenants. The portfolio's landmark Munroe Lane development is progressing well with completion forecast in early 2023. Before I hand [indiscernible] by reiterating the half year '22 has been punctuated as a period of significant organic growth for our Real Estate division. We remain focused on sourcing quality real estate investment opportunities, utilizing our deep real estate expertise and leveraging our platform to create value for our investors. Thank you, and I'll now hand back to John to talk through our strategy and outlook from Slide 27.

Thank you, Jason. Just moving to Slide 28. So on behalf of my fellow joint Chief Executive, obviously, the senior management team and the Board, we'd like to make some comments about strategy, the markets and the execution of our strategy. So during this presentation, we've spoken about delivering on a clear strategy -- and really this begins with consolidating our position as a leading Australasian funds manager. So we remain strongly focused on the property sector via equity and debt funds. Our team spreads from the West Coast of Australia and Perth to the East Coast of New Zealand and Christchurch. It's built up of sector specialists who are focused on growing our platform, delivering strong earnings and growth for a very broad range of investor profiles. Each of those 7 asset classes we operate within continue to provide compelling and attractive tailwinds. For example, demand for the industrial and health care sectors, especially through this pandemic remains unabated. Decentralized offices continue to attract quality tenants, and in turn, our deep capital sources daily needs retail is experiencing strong yield compression while demand for fresh produce generates further opportunities in the agriculture sector. In Slide 29, we just want to make some specific comments on how we execute on our strategy. So we've used our platform scale, which is assisted by recent corporate acquisitions to bolster our organic growth. But in fact, this is a circular reference. Each one assists the other to build the company's growth and support ever larger acquisitions if they are the right thing, and ever larger listed and unlisted acquisition opportunities for our property funds. We'll continue to expand within the emerging sectors of health care, agriculture and daily needs retail in addition to executing strategies within our traditional markets of office and industrial. We remain focused on highlighting significant deal flow, especially through off-market opportunities. And our cap trans team now is one of the largest in the country, and we're very proud of it. Equally, our active development pipeline will continue to generate sustainable, high-quality stock for our funds. We're committed to our long-standing distribution networks, especially through our market-leading retail investor network and are focused on providing all investors with predictable earnings growth. And we aim to further enhance our AREIT market presence, expanding CIP and COF collective $3.7 billion market cap, while exploring potential new vehicles based on sector attractiveness, scalability and market suitability. Before I open the floor to questions, on behalf of Jason, Simon, Tim and our management team and our Board, I'd like to thank our investors for your continued support. That concludes the formal presentation. I'll now hand back to the operator to commence the question-and-answer session. Thank you for your attention.

[Operator Instructions] Our first question comes from Richard Jones at JPMorgan.

Just a couple of questions, if I may. Just in relation to Bass Credit, can you give us an outlook on that business? And maybe touch on how much capital you're willing to provide to grow that business.

Sure. It's Jason here. Look, we've had very, very strong inbound inquiry on that business. The year started off very, very well. As you've seen from the growth in the last period, it is definitely continuing. We've always seen with the banking sector making it more difficult for a lot of developers to source funding. We're seeing a lot of high-quality groups approach us. So we expect that to continue to be a very strong area. In terms of capital, it's not that much of a capital-hungry business from our balance sheet. We've got very strong investor demand from the traditional SaaS investors. And as our Centuria and Primewest investors are being educated on these debt products, we're seeing more and more inflows from those investors as well.

Okay. And then just in relation to the balance sheet -- sorry, the development slide, the $750-odd million of committed balance sheet developments, can you just highlight what contributes the lion's share of that? And perhaps work us through how the sell-down process goes with those projects.

Yes, sure. So obviously, in some of the earlier projects, we do take these projects on the balance sheet in their early stages before planning and the like. So there's some larger projects that we've had on balance sheet and will probably end up in funds as they are derisked. So examples are obviously the new short-stay hospital in Kew and Victoria, which we're currently working through planning at the moment. We expect that to be through planning within the next 4 or 5 months, and that would mean that would be more likely end up into a fund, which would develop through and Centuria would've been within development management fees and the like. We have other projects that have carry on balance sheets mainly in the health care space. So we have other sites that we're working through planning that will end up in these funds as well. So the end value is high, but the starting value is mainly site value. And as we work out planning then they'll be moved over to the funds, and the capital will be committed from the different funds either unlisted wholesale or institutional.

Okay. So you would -- much of the $750 million committed to be funded on balance sheet?

It would be -- yes, the vast majority will be committed through funds, not balance sheet, correct?

I just want to add. So disposing that question out. I mean, at the moment, we're seeing there was $74 million of balance sheet across about 5 or 6 assets invested in developments. And I concur with everything Jason said about moving them off at the appropriate time into those funds.

Our next question comes from Ben Brayshaw at Barrenjoey.

Just the first question. I was wondering if you could comment on the unrecognized performance fee income of $25 million as to whether that includes the application of risk weights or whether that's the gross number based on current book values within the underlying funds?

Ben, it's Simon here. It's the remaining balance left to be booked based on the underlying funds.

Okay. And just also -- apologies for the, I suppose, slightly specific nature of this question. But the $19.3 billion in AUM for real estate, does that include the current inventory-carrying values for the development projects? Or does that include the end value for those projects, which I think you're suggesting is around $2.2 billion?

No. That only includes -- sorry, it includes the carrying value of the investments -- of developments as it stands today and does not include the as-if completed value.

And finally, just on the investment bonds EBIT. It's recovered pretty strongly this period. I was wondering, does that include a reversal of anything that you've done over the last 12 months? Or should we look at the EBIT from investment bonds as now being stabilized?

Yes. Look, in that number, a lot of that is some recruitment of previous period numbers as a result of going into the unitized model that we were able to recruit around those 2 products. In the context of what if -- the going forward and beyond, I think our expectation is somewhere between the $4 million and $5 million for FY '22 as a full year number and somewhere around those kind of levels into the future.

Just to make that clear. So we had a couple of funds, legacy funds that were capital guaranteed funds. So during the period, with APRA's consent and encouragement the policyholders on those funds voted over to a [ unit first ] nature. So there are no capital guarantee applications anywhere in the group now. And yes, we can operate those funds in a far more flexible nature without reserving far better results for the policyholders.

Yes. And just finally, I mean, I suppose I'm interested in your perspective on retail inflow just in the context of if we were to see 2 or 3 rate hikes from the RBA over the course of the next sort of 12 to 18 months. What, in your opinion, based on your experience, would you expect that to do to retail allocation towards real estate?

It's Jason. It's interesting. Obviously, yes, I think most people are assuming rates are on the move and heading up over the next 12, 18 months. What we're seeing on the ground is still really strong demand. We've had equity raises every month for the last 4 months, and we've got them lined up. This is in unlisted space, obviously. For the next 4, we're marketing different products at the same time, such as debt funds, our health care fund. We launched 25 Grenfell Street this week. And by all indications, it has been very, very strong. The initial demand for the funds we've launched in the last couple of weeks have been really strong as well. So we're definitely not seeing it flow through at the moment. Historically, obviously, inflows have been highly correlated to deposit rates. And I think until we see those moving significantly and we're going back historically, where we saw the [indiscernible] was around 5% is where when rates got above that, it's where we saw close to really slow down. Obviously, we're in a different environment now. But until term deposit rates really move, I can't see it affecting our inflows. It's just been -- it's still proving to be very, very strong, even though most investors do see increased rates on the horizon.

Yes, I agree with everything Jason said. I think the only thing we've noticed is that we'd like to see the end of all the lockdowns. I think there's been any investor uncertainty. And I don't think that this comment applies to retail inflows for our sort of products or even inflows into the equity capital markets. I think coming up to the end of last year, particularly in Australia and New Zealand, people were just not investing, but they got just investor -- a bit of investor tiredness crept in, a period where they're sick of being locked up on the hindsight. We're delighted to start off calendar '22 with everyone just in a much more positive frame of mind of -- like we were blown away by reopening. It's something up the other day, Jason, I think just the other day and the inflows in the first 24 hours have knocked us off our perches, we couldn't believe it. So I think, people just had enough last year. And we've got a very strong network. And they want to invest, but they've been knocked around enough. Now they're ready to start investing again, I think.

Our next question comes from Simon Chan at Morgan Stanley.

My question is also on flows. I was just wondering how much net equity inflows that your platform -- that the real estate platform actually get in the first half. I know there was about $500 million from the listed side of things. But what were net equity inflows on the unlisted side in the last 6 months?

Simon, do you have that number handy?

So it's about 45% of $800 million being the equity -- of the equity in relation to the unlisted book. So we raised -- we obviously did about $800 million in the 6 months of unlisted product. And obviously, at 45%, 50%, what you have to equity raise it around -- you're sitting in and around that $400 million, $450 million that we would have raised in the first 6 months.

Okay. So how does that number compare to, say, 2021? Like is that about the right run rate? Or have we seen a massive uplift in the unlisted fund -- unlisted equity inflows?

Yes. You can see that come through on your revenue line, particularly around the transaction fees. So yes, it is significantly higher than the prior period. And I'll just get you the exact numbers on the acquisition fees. The first half this year was $17 million. And then last year, it was $5 million for the same period.

Okay. Okay. That's great. So just further to that then, so you raised $400 million from the unlisted equity inflow savings. How much of that would be from existing Centuria investors? And what percentage of that would be from, say, new joiners, new joiners on to the platform?

Yes. So it's Jason here. Look, traditionally, the equities come through, obviously, 2 sources. So we have our direct investor base that we've built up over the years, are very similar to the Primewest investor base, so more high net worth focus. And that continues to grow by word of mouth and marketing and the like. Probably where -- and that's been growing for a long time. Probably the other part we're obviously really focusing on is the wealth management platforms and the financial adviser platform to put the clients into our products. So we have a distribution team of [ 6 BDN ] around the country. And all they are doing is going out and meeting adviser groups all day. So that's probably where we're really growing. So there's a lot of new adviser groups that are putting out products through their platforms. We've broke into NAB more recently through their private wealth, Morgan Stanley and other groups that are obviously the smaller platforms as well that are putting their clients through. So it continues to grow and evolve. Obviously, we talked about we've got 12,000 -- over 12,000 investors. But also what we're seeing is some of these, especially these larger groups as they get more comfortable with us, the amount of inflows is increasing as well. And the individual investors behind those amounts, a lot of them are new, particularly across those large platforms.

Right. But you don't have the exact number, percentage split as to newbies versus existing Centuria customers?

No. We don't have that at hand, but we can probably dig it up for you and send something over. The issue is a lot of it is through the rep platform. So it's very hard to find out the individual investor behind the investment. So it's actually quite hard to get those exact stats.

Okay. Okay. No, that's fine. I mean, I was just trying to get a feel as to like you're relying on growing the existing customer base or expanding your customer base, that's all.

Our next question comes from Tom Bodor at UBS.

I think my question relates also to interest rates increasing, but less around the retail fund inflows but more around how you're looking at that as both a risk and an opportunity to the business in terms of interest rate hedging and also on the investment bond side, just what the impact will be as rates start to go up?

Tom, it's John. So I think, first, I'll let Simon deal with interest rate hedging. In terms of investment bond business, look, I mean, these are unitized products that invest across a wide spectrum of equity capital markets and the bond market. So those policyholders are subject to the same investor return spreads that really globally that all of us are. So we're not expecting it to -- our investment bond product to be any more or less attractive than inflows to really any fund manager. Hopefully, we're making as good if not better job than anyone. And those balances are building particularly the [indiscernible] products, we're about to launch a couple more. In terms of the hedging, Simon, I think you've got a page on that.

Yes, there's a page. I mean, we can go and just refer to the page for everyone so that's clear.

Yes. I think, specifically, I'm just interested in the level of hedging sort of rolls off pretty quickly. I appreciate your policy around deterioration. But does it have a meaningful impact as rates increase to both the listed and unlisted funds?

Yes. Look, I think the answer to that is we actually think the hedge duration is actually well placed and isn't short. I mean, a lot of the unlisted funds are 5-year funds and most of them are probably into 4 -- 3 to 4 years remaining. So it really does line up more so with the maturity of new funds, particularly in the unlisted space. And we do take a fairly conservative position because it has always been in unlisted, the one area that is probably the greatest risk in your earnings numbers on a single asset fund. So we tended to have much higher hedging levels for longer periods of time. And that's pretty much a true statement in fact across all of 150 funds that we have. I mean, obviously, CIP and COF, you guys can see that, what they have done. But we have a minimum policy, a policy that's a minimum of 50% hedged at all times with the banks. And then I believe CIP is up around 60% or 63%, and COF is not too far off that either. So we think there's a -- we've taken a prudent approach to hedging prior to all this volatility, and we'll continue to take a prudent approach to interest rate hedging through the volatility as well.

Yes, that's great. And then the final one for me was just around the run rate of transactions. I think at the start of the year, you talked about guidance being on the basis of $2.75 billion of full year transactions you've achieved $2.5 billion in the first half and you've upgraded your guidance. What is assumed in your new guidance around the second half transactions?

I think the best way to look at it, and what's that, Tim, page 14? The best way to look at it, you've got about $1 billion -- or just over $1 billion of things that we pretty much settled just before Christmas, particularly around Heritage in New Zealand, for health care and 25 Grenfell for an unlisted fund. So the number in those transactions do represent fees and fees that we generate in the second half rather than the first half. I think that little picture on to the right of that page, we really try to explore and expand out. So you could better understand where those transactions fit in and which periods and should allow you to be able to model it a bit better between when the fees come in against what we put in the AUM numbers.

Yes. So the [ they've brilliantly ] set up over this period. And then obviously, we have assumed some more acquisitions as well, but they are all made up. And obviously, that upgraded our earnings number.

Okay. But it's fair to assume there's not a huge amount of acquisitions that haven't yet been made that are assumed to settle this year. Is that a fair comment?

Yes. Look, there's some in our forecast, but yes, not huge amount.

Our next question comes from James Druce at CLSA.

John, Jason, Simon, 2 fairly vanilla questions actually. Just on your real estate AUM number, does that include all the exchanged but not yet settled acquisitions that you've done?

Correct. As at 31 December, and that's that 108 -- it's $1,087 million, I think. Yes, $1,087 million on that Page 14.

Yes. Okay. And then if you look at sort of the latent performance fees that you have left, is that more going to be a 12- to 18-month story or a second half story?

I think it's still -- I mean, it's only -- it hasn't changed too much from the full year. So it's really an 18-month story as opposed to next 6 months. So it's effectively over that 18-month horizon on a reasonably [ installment ] . So I think what's happened in this particular half is we've had a couple of health care assets transact -- that we normally have transacted or weren't in their window. And we've also received those performance fees from both CDPF and CHPF as open-ended funds and they've outperformed during the 6-month period.

Our next question comes from Andy MacFarlane at Jarden.

Just a quick one for me. The result pretty strong at $.074 that the full year implies you're expecting lower in the second half. Can you just walk through the components of why you think 2H declined versus the first half for the full year?

At a very high level, yes. At a very high level, the simple math is that the performance fees will be less in the second half than the first half. And as a result of those key performance fees that came through in this half in this forecast. I think in terms of the underlying business, the underlying performance of the business, the recurring revenue stream should be still stronger particularly as we do -- it's settled a lot of transactions in the first half of this year. So you get the full 6 months coming through in the second half. Look, and the other thing that's always played into that is just depending on what's listed and unlisted in the transaction space. And obviously, we did close to $900 million in the listed space in that 6 months, which doesn't have acquisition fees at the front end like the unlisted does.

[Operator Instructions] Our next question comes from Edward Day at MA Financial.

I'm just keen to understand the development pipeline in a little bit more detail. You sort of said you're planning on going to a more stabilized development management fee income. Just firstly, what's the sort of time frame for the pipeline? And what's the sort of estimated run rate for that development management fee going forward?

On the pipeline, it's Jason, so on the pipeline timeframe, obviously, we've broken up between committed and future. Committed are projects that are in planning or have commenced construction, so those projects are sort of 1 to 3 years. And then future pipeline is sites where we can put future developments or the rezonings or very large market plan -- projects. And those are more likely commencing 3 years out, so about 3 to 6 years. So as we put more and more of these into the funds, as we've said in the presentation, we turn to that sort of development management fee model that we started seeing those increase quite significantly through the period and we'd expect that to continue.

And then just one more. On the New Zealand health care acquisition, that's the $276 million is getting split across the Centuria Health Care and the Centuria New Zealand Health Care funds. Could you just give a clear indication of how the fundraising is going? And are they both retail funds?

Yes. The New Zealand fund will take 2/3 of it, and that's a brand-new fund that can get that launched within a few weeks' time. So that's just all being geared up at the moment. Our distribution partner [indiscernible] is very positive. I think, the 30-year triple net leases will be very well received. And what I've noticed in New Zealand is a definite preference from investors to invest into health care. They really see it as a strong sector over there. There's not a lot of opportunity to invest into health care. And in Australia, so for the 1/3 stake, that's going into our open-ended retail fund, CHPF, and that's kicking off shortly as well. But we'd expect there's an $85 million raise in that fund to -- for the equity for these assets, as well as a couple of other assets are buying that fund at the moment as well. But talking -- our initial discussions with some of the large platforms have all been very, very positive.

Our next question comes from Peter Edison (sic) [ Davidson ] at Pendal Group.

Peter Davidson here. Just a quick one. The development fee model you're going to move to is that like 10% of CapEx or something like that. And is that how we model it there?

Yes. So the fees range sort of in that sort of 4% to 5% mark of development management fees. So just...

Is that of spend or total value?

That's of total development costs. So except for land.

I see. Okay. Great. And just another one, just picking up on Richard's question about Bass Capital. That $1.9 million, is that mainly, is that sort of spread income typically that you're making there? And is that your half year? So you're making $1.9 million, call it, $4 million a year. Is that basically spread income you're picking up there? Is that how we look at that? Or is it also capital raising fees as well?

Sorry, Pete, which 1.9...

Jason...

I see Simon here, you can...

Yes. It represents 50%. So the business is generating around $4 million for the half year. So at 100% should double at $8 million for the year. The spread question is there's an element of that, but there's also the establishment fees that come through at deal execution or entering into the facility agreement with the borrower. So they are separated, add them all together, yes.

Okay. And you've got a call to buy the balance of that business, is that right? Call, right?

Yes, we have a call.

After 5 years. Yes.

Thank you, everyone. We have no further questions. So I'll hand back to your presenters for closing comments. Thank you.

I'll just wrap it up. Thanks very much for everyone joining the call this morning, and we look forward to talking to you over the next couple of days, weeks to talk about the results further. Thank you very much.

Thank you.

This does conclude the call today. Thank you all for joining. You may now disconnect.