Centuria Capital Group (CNI) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to Centuria Capital Group Half Year 2023 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. John McBain, Joint CEO of Centuria Capital Group. Thank you. Please go ahead.

Good morning, and thank you for joining us. I'm John McBain, Joint Chief Executive of Centuria Capital and together with my fellow joint CEO, Jason Huljich; and Chief Financial Officer, Simon Holt. We have pleasure in presenting Centuria's 2023 financial year interim results. I will present an overview of the group, our '23 highlights and comments regarding strategy and outlook. Simon with financial update, and Jason will present the real estate and Funds Management divisional update. Centuria pays its respects to the traditional owners of the land in Australia and New Zealand, to their respective cultures and to the elders, past, present and emerging. Slide 4 provides an overview of the group and illustrates our increased scale and diversification throughout Australasia with group assets under management increasing the $21.2 billion during the period. It also shows the breadth of our platform across listed funds to have a 31% weighting and unlisted funds with a 66% weighting. Our unlisted Real Estate Funds division is supported by a broad distribution network, they are complemented by our institutional capital from partnerships and mandates. As our balance sheet has grown, we've taken key stakes in the Centuria REITs, our joint ventures and institutional mandates as well as our open-ended unlisted funds. On Slide 5, despite global and domestic market uncertainty throughout the first half of FY '23, Centuria has delivered operating earnings per security of $0.074. Noting that full year, our OEPS guidance remains at $0.145 and in line with HY '22, which was previously a record half year earnings result for the group. Our HY '23 distribution per security of $0.58 was provided. Again, noting that full year distribution guidance remains $0.116, up 5.5% from FY '22. Centuria continues to deliver high recurring revenues, 91% of total revenues as well as consistent access to embedded performance fees. Though interest rates have increased from emergency levels, we understand the cyclical nature of markets and the benefits of executing long-term strategies to deliver sustainable recurring returns. We maintain a disciplined approach to capital management, and are focused on pursuing operational success, leveraging our in-house management capability, diverse distribution networks and growth strategies to deliver value for CNI security holders and the underlying investors across our platform. To this end, Centuria's transactional activity during HY '23 includes $1 billion of gross real estate activity, largely the combination of unlocking opportunities across alternative real estate sectors and value-add or carve cyclical opportunities within our long-standing traditional markets. This is complemented by a strong development pipeline of $1.7 billion. Moving to Slide 6. Centuria continues to benefit from organic growth resulting from real estate funds management, development and our expanding Centuria Bass credit real estate. Most significantly, our unlisted platform benefited from strong expansion, predominantly within the alternative real estate sectors. We have a focus on the agriculture real estate within our open-ended Centuria Agriculture Fund, or CAF, growing to $250 million AUM within 6 months. And real estate credit funds of Centuria Bass growing its loan book to more than $1.1 billion. During the half, we settled the acquisition of a 50% interest in the $220 million Allendale Square building in WA. This was acquired by direct wholesale investors in an unlisted fund. We also captured value-add opportunities across the office and industrial sectors, the latter reflected in the Centuria Industrial REIT partnership with an investment vehicle sponsored by Morgan Stanley Real Estate Investing, known as Centuria Prime Logistics Partnership. This joint venture is indicative of our institutional capital base expansion. Slide 7 outlines Centuria's continued focus on its sustainability framework. During the period, we published our second sustainability report, continued to target a minimum 5-star green rating in the development projects sponsored by Centuria REIT, continued our ongoing solar installation across office and industrial assets and partnership with tenants, improved diversity at 45% female workforce representation and released our supplier code of conduct, outlining the minimum standards we require from suppliers and contractors. I will now hand you over to our CFO, Simon Holt, who will take you through our financial results.

Thanks, John. Slide 9 shows our operating earnings and distributions for the half year as well as guidance for the full 2023 financial year. Today, we reported the group delivered half year '23 statutory net profit after tax of $74.3 million with operating NPAT of $58.5 million. This is a robust performance considering market conditions and increased funding costs. This demonstrates our resilience and quality of assets under management as well as the continued diversification of the portfolio. This has translated to an operating EPS of $0.074 per security for the half year, which matched our record performance in the comparative period. Our confidence in the quality of earnings underpins the distribution for stapled security, which has increased to $0.058 for this half and remains aligned with FY '23 guidance. As such, I'm pleased to reiterate John's earlier statement that our FY '23 guidance remains at $0.145 per security. In addition, our distribution guidance, which has been reaffirmed is $0.116 per stapled security, representing an increase of 5.4% compared with the prior year. Moving to Slide 10, which outlines the key components of our earnings. Profit attributable to our Property Funds Management segment was slightly above half year '22. Despite transaction fee income decreasing by $9 million, the group saw a sustained growth in management fee income up 20% from the half year last year. Performance fees of $14.6 million were recognized in the half, which is in line with our expectations. And it is important to note that the group has an additional $162 million of latent unrecognized performance fees, which are expected to emerge based on the maturity profile and life cycle of the underlying funds. As an external fund manager, Centuria continues to co-invest alongside its investors which brings alignment as well as continued source of recurring revenue. The group's co-investments segment yielded an operating profit of $26 million, up 16% from the prior period. This reflects the deployment of additional capital in support of new unlisted funds as well as warehousing of revenue-generating seed assets for planned future funds. It is important to note that this planned usage of the group's latent balance sheet strength, which has been accumulated over the years will allow our business greater flexibility in supporting the establishment of future unlisted funds in an otherwise uncertain market. Moving on to the Development segment. Operating profit from this segment doubled to $5.7 million for the period. The group has been strategically developing assets to seed and expand our property funds. The Development segment's current $1.7 billion pipeline comprises of ongoing and upcoming known projects. which will continue to be a source of profitability and growth for the business. The Property & Development Finance business segment represents the group's 50% interest in Centuria Bass Capital, which has contributed $3.8 million to the operating earnings of the group for the half year and is up 100% from this time last year. Centuria Bass' performance has pleasingly exceeded budget, benefiting from continued AUM growth, conducive market conditions, investor appetite and Centuria's property and distribution expertise. In the investment bond segment, the transition of our capital guarantee product into more contemporary unitized offering will improve returns for our policyholders as well as increase margins for our investment on division over time. This transition has led to a one-off recruitment and management fee rebates in the prior period resulting in the higher noted profitability in the comparative period. Moving on to the corporate segment. Corporate costs decreased from $10.2 million to $7.7 million in this half. The decrease is a result of a $2 million repayment of job keeper in the prior period, with cost management initiatives during the current period accounting for the remaining cost savings. It's pleasing to note the continued decrease in normalized corporate expenses as a percentage of divisional operating profit before interest and tax, which has declined from 15% in FY '21 to 8% in half year '23. This reflects emerging efficiency and cost savings associated with the increase in size and scale of operations. Finance costs increased to $15.6 million in the current period, reflecting a $150 million net increase in average borrowings combined with the impact of higher interest rates throughout the period. The decrease in operating tax expense from $12.8 million for the half to $10 million in the current period, is the result of interest reductions arising from higher average cross staple line balance within our stapled structure. Turning to Slide 11. It is important to highlight that our ability to continue generating recurring transaction fee income stems from the diversification of our real estate platform. Transactional activity amounted to 1.7 million undertaken by the group have contributed $14.7 million of transactional fee income to recurring revenues for the half. This included $369 million of acquisitions exchanged in the financial year '22 and settled in this half and $395 million divestments. Additionally, $1 billion of new gross real estate activities were completed this half, comprising $660 million of property acquisitions and $349 million of real estate finance loans. Looking at Slide 12, we are pleased to report that the group's balance sheet has continued to strengthen with a net asset value per security increasing from $1.73 at 30 June '22 to $1.79 at the end of the half year. And based on yesterday's share price for CIP and COF, our net asset value would further improve to $1.87. The group has immediate access to available funding of $250 million, comprised of $116 million of cash reserves and $132 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 addition, the group has also secured a new debt facility of $50 million with a 5-year term enabling the refinancing of near-term maturities. The group's operating gearing ratio has increased from 13.2% at the end of financial year '22 to 17.3% or if using CIP and COF's yesterday's closing share price would be 16.8%. This increase reflects the already mentioned deployment of additional capital in support of our unlisted funds and warehousing of new assets. Our interest cover ratio has also decreased from 6.8x to 5.4x compared to the full year '22 as a result of increased interest rates despite static operating earnings. Centuria's balance sheet continues to be well positioned to capitalize on future growth opportunities and benefit from increased funding optionality, access to new debt instruments, along with ample headroom to debt covenants. Moving on to Slide 13, which highlights the key attributes and profile of debt across the platform. We've continued to diversify our exposure amongst our pool of 21 lenders with favorable outcomes for the financing of our funds and broader risk mitigation. From the $8.2 billion of debt facilities, the platform has a weighted average debt duration of 2.4 years, which is mostly representative of both the nature and maturity of our unlisted funds platform. We will continue to rotate capital amongst our lenders and extend duration where it makes sense and is aligned to the funds maturities and asset strategies. The group is hedged across these funds to a weighted average of 48% with a weighted average duration of 1.9 years, which is broadly aligned with our debt duration and in line with our policy of not hedging beyond the debt duration of a fund. As a result of the significant disparity over the past 12 months between the market interest rate curve and market consensus of the RBA cash rate, we have continued to maintain our flexible approach to managing hedging profiles across the group after considering investors' hedging appetite. This has resulted in our weighted average duration shortening in this period. I'll now hand over to Jason, who will take you through CNI's divisional highlights.

Thank you, Simon. Good morning. Let's move to Slide 15, which illustrates the breadth of Centuria's 7 diversified real estate verticals. I'd like to start with the alternative sectors that we invest in. During the half, we focused on expanding our agricultural portfolio, which increased 20% during the 6-month period. These acquisitions were predominantly transacted by our unlisted open-ended Centuria Agriculture Fund. Centuria presently now owns 25% of large-scale Australian glasshouse infrastructure. Banks have further tightened [Technical Difficulty] the driving strong demand for nonbank finance from the property sector. Our unlisted real estate credit funds increased more than $1.1 billion over the period, and we believe this division will continue to benefit from strong tailwinds within the second half of FY '23. The Healthcare portfolio continues to benefit from strong occupied demand for specialized assets, including newly constructed properties. This vertical increased to over $1.7 billion in AUM. Moving to more traditional real estate asset classes. The Daily Needs Retail and Large Format Retail portfolios continue to perform well with $1.8 billion and $1.6 billion, respectively. Our industrial portfolio continued to harness strong sector tailwinds with extremely limited vacancy nationwide. This sector accounts for more than $6 billion of Centuria's AUM. And finally, contrary to anecdotal speculation about the impact [Technical Difficulty] May have in the Office sector, our Office AUM increased to $7.5 billion throughout the period. Slide 16. Slide 16 demonstrates Centuria's diversified $20.4 billion real estate platform and fund structures across our 7 verticals, which range from single and multi-asset closed funds, opening at unlisted funds, listed rates and unlisted institutional partnerships. These funds types are intentionally tailored to various investor profiles to suit different risk reward appetite, be they are retail or wholesale investors as well as domestic [Technical Difficulty] institutions. The group benefits from broad investor distribution networks following the integration of a number of management platforms. The table identifies a number of potential growth opportunity with [Technical Difficulty] gaps in our product offering or smaller portfolios that can be scaled up. Moving to Slide 17, which outlines [Technical Difficulty] Effectively manage assets within our portfolios. The strong in-house team, we're at the [ cold ] face of tenant relations and leasing opportunities for our assets. The group manages around 425 assets [Technical Difficulty] approximately 2,500 tenant customers. Average rent collections during the period totaled a healthy 97%. This impressive result was complemented [Technical Difficulty] 238,000 square meters of leasing terms agreed across 286 individual deals. Centuria has a wide variety of tenant customers, and we partner with Australia and New Zealand's largest corporates to provide [Technical Difficulty] solutions to household names, including Woolworths, Telstra, Coles, Wesfarmers, Arnott's, Visy, Heritage Lifecare and Healius. [Technical Difficulty] tenant customer by a factor or form is a federal state and local government with exposure to more than 12% of our portfolio, providing [Technical Difficulty] of rental revenue. Collectively, our Australasian platform provided a high average occupancy exceeding 97% and an average WALE of 6.3 years during HY '23. The group's high occupancy and staggered expiry profiles provide opportunities to deliver income predictability as well as capturing rental uplift upon expiry. Turning to development on Slide 18. Centuria's development team delivered a number of projects throughout the period worth a collective $220 million, while progressing a $1.7 billion development pipeline. These projects include opportunities to upgrade, refurbish and redevelop properties as well as provide new assets for our funds. Some of the key completions included a 41,000 square meter multiunit industrial Estate in South Dandenong, Victoria.[Technical Difficulty] 22,000 square meter industrial warehouse in Direk, South Australia; a 4,500 square meter A-grade office lease to the Federal Government on a 10-year lease; and a 3-storey [ hotel conversion ] in Auckland, New Zealand. Now let's take a closer look at our unlisted real estate platform on Slide 19. Centuria's unlisted funds have expanded by more than 7% during the period. Our unlisted funds continue to gain a strong interest from a range of capital sources and service more than 12,000 retail, wholesale and institutional investors. More than $14.6 million in recognized performance fees were generated from the unlisted platform during the period, with a further $160 million in latent underlying performance fees. During half year '23, over $1 billion of gross real estate active [Technical Difficulty] executed, which is largely attributed to unlisted transactions. Slide 20 demonstrates several examples of our understood investment opportunities secured throughout the period. As mentioned, Centuria's unlisted Agriculture Fund, CAF, expanded to circa $250 million including the recent addition of a high-quality Sundrop Farms glasshouse. As John mentioned, Centuria presently owns 25% of large-scale Australian glasshouse infrastructure and we're in the process of finalizing negotiation [Technical Difficulty] for further glasshouse assets on long-term sale and leasebacks. Our real estate credit offering is provided by Centuria Bass. During the period, Centuria Bass launched 4 single asset funds worth more than $76 million on average terms of less than 18 months. These loans are secured by first mortgages and largely comprised of residual residential stock and strategic land parcels. The open ended Centuria Bass Credit Fund, or CBCF, continue to grow its loan book with strong investor interest. Within the more traditional asset classes, Centuria launched a value-add office fund underpinned by [Technical Difficulty] credit investment in Perth Allendale Square asset. The asset was acquired in partnership with MA Financial Group, providing a 7.25% cap rate and 85% occupancy. [Technical Difficulty] enables Centuria uses in-house capabilities to execute its value-add leasing strategies. And following Centuria Industrial Income Fund #1, we launched [indiscernible] during HY '23. Moving to our listed entities on slide 21 where Centuria's pure-play I REIT delivered a solid performance throughout half year '23, delivering strong leasing success, which has accredited to created to demand for high-quality assets within the office and industrial sectors. Since the start of COVID, COF has leased over 150,000 square meters of NLA, more than 51% of its portfolio, the largest volume undertaken in the REIT's history, which highlights tenants' recognition for collaboration and corporate culture within an office as opposed to working from home. Within the half year '23 period alone COF leased more than 30,000 square meters across 32 individual deals, which increased portfolio occupancy to 96.4%. Positive industry data continues to [ revel ] increasing return to office metrics will benefit, which will benefit cost portfolio going forward. Like COF, CIP demonstrated strong leasing success across its urban infill industrial portfolio, generating 19% [Technical Difficulty] across deals executed throughout half year '23. The strong top line growth remains conductive to some applied demand and balances across industrial markets and service benefits from this with 99% portfolio occupancy. Importantly, 20% of CIP [Technical Difficulty] portfolio income provides CPI index rent reviews, which offer a natural hedge to inflation. During the period CIP reduced its gearing to less than 32% through strategic divestments and increased its hedging to 77%. Both REITs continue to [Technical Difficulty] management with gearing in the low- to mid-30% range, substantial undrawn debt, ample debt covenant headroom and [Technical Difficulty] debt expiry profiles. Let's move to Slide 22. Through unlisted mandates and partnerships, Institutional investment has grown from $300 million in FY '20 to $2.1 billion today. In addition to the existing Office and Daily Needs retail mandates [Technical Difficulty] have recently formed 2 partnerships with separate Morgan Stanley Retail Estate Investment sponsored vehicles, [Technical Difficulty], industrial portfolios. This institutional capital complements our deep network of retail and wholesale investors. Through strong established relationships, we are able to tailor unique transaction and fund opportunities for various institutional partnerships to match various risk appetites and allocation into a range of property sectors. These initiatives extend to bespoke mandates, capital partnerships and selected JVs. We expect further growth over the coming period. Before I pass over to John, I'd like to elaborate across several alternative verticals beginning with agriculture on Slide 23. Agriculture AUM has now reached $420 million including CAF, which has grown to $250 million. As we work through negotiations for glasshouse assets on long-term sale and leasebacks, we are focused on acquiring further high-value protected cropping and agriculture supply chain real estate. As we pursue an AUM target of $650 million to $700 million for agriculture by FY '23 year-end. Slide 24 outlines the strength of our real estate financing offering. During the period, Centuria Bass Credit executed 19 real estate loans worth $350 million. This included lending across a diverse range of asset classes and sub-markets. more than 90% of its facilities were first mortgage loans. Again, the exceptional growth with strong market demand for alternative real state finance solutions, which we expect to continue for some time. Slide 25 outlines our $1.7 0billion under the Healthcare platform, which spans the Australian and New Zealand markets and there's a further $850 million of development pipeline. During half year '23, 2 healthcare acquisitions were $42 million were added to the platform. Centuria's open-ended Centuria Healthcare Property Fund or CHPF, accounts for $600 million of AUM. In total, Centuria now has more than 100 Healthcare properties, servicing 235 tenant customers. Let me conclude by reiterating Centuria benefits from a very well diversified real estate platform by geography, fund type and capital source. Our platform is supported by experienced professionals throughout Australia, New Zealand and the Philippines, many of whom have significant experience throughout various market cycles. We will continue to remain focused on the capital management of our vehicles and we'll also take advantage of opportunities that arise to deliver attractive return to our investor clients. Thank you, and I will now hand back to John to talk through group strategy.

Thank you, Jason, and thank you, Simon. I may make some comments regarding our corporate strategy. But of course, whilst I'm reading this, this strategy has been developed after careful consideration by our senior team here. Centuria will continue to grow our high-margin unlisted platform in Australia, New Zealand, which currently has a 65% portfolio value. We've built on our diversification in the health care and agriculture through -- particularly through the open-ended unlisted funds, CAF and CHPF, which are well supported by our investor network. So we believe we will continue attracting strong investor demand for these products. We also believe there will be increased opportunities throughout the real estate credit markets, and the Centuria Bass Credit Funds have proven to be very well supported by both our retail and wholesale [Technical Difficulty]. We can foresee continued growth in this division are supported by strong tailwinds arising from tighter traditional credit markets. We will continue to deploy investment opportunities for our institutional partnerships across retail and healthcare verticals to actively seek value-add Office and other opportunities for the unlisted network. The value add, the core Centuria skillset, we've got a long track record for providing these opportunities in suitable market conditions. We'll continue to actively manage our I REITS COF and CIP, capitalizing on industrial rental growth potential and repositioning where appropriate. We'll continue to access the development pipeline which provides our funds with modern market-leading assets. Finally, I will still encourage growth through select corporate acquisitions where opportunities provide accretive expansion and they relate to our real estate buyers. Before I open the sort of questions, so on behalf of Jason, Simon and our management team and the board, I would like to thank our security holders for your continued support. That concludes the formal presentation. I'll now hand back to the operator to commence Q&A.

[Operator Instructions] The first question comes from the line of Tom Bodor from UBS.

I just was interested in the recognition performance fees. And specifically where if the fund does decide to roll for an extra couple of years, so that the asset doesn't need to be sold. Just wanted to understand how that will ultimately impact the recognition of performance fees there.

[Technical Difficulty] Tom, would you like to repeat your question?

Sorry, I was just asking about the performance fee recognition where ultimately, a fund decides to defer the sale of an asset, how that will impact the recognition of performance fees in future periods?

Yes. It's Simon Holt here. Tom, in that scenario, where we've recognized performance fees inside that 2-year hurdle, those performance fees recognized will stay, and then we'll effectively slow the recognition of that revenue over that longer period of time or that extension period of time. with the view that [Technical Difficulty] when we close out [ or sold the asset ] we probably have about 30-odd percent of the revenue still to be recognized.

And then the other question I had was just around the velocity of capital raisings. Just would be keen to understand where you're sort of seeing the most demand in terms of your investor base at this point in time, be it sort of retail investors or more institutional wholesale investors?

It's Jason here, Tom. For the period, the unlisted started to raise just over $430 million of equity, so it's a pretty successful period in a difficult environment. As mentioned in the presentation, there's a lot of demand for those alternatives. So we're getting a really good run with Ag, and we've got a very strong pipeline of assets in that space, and that's been well supported by private banks and directs. Healthcare is still strong. We did a raising just pre-Christmas, and we're probably surprisingly upside on that. Again, a lot of the wealth management platforms have been supportive of the health care thematic. And then if you look at the traditional asset classes; office, it's more that value-add office like Allendale Square rather than core. And we also did the Industrial and is high as well. But definitely, our preference probably and more demandwise alternative asset classes.

And then just in terms of in terms of the actual core investors as well, so sort of the institutional investors versus your traditional single-asset syndicate-type investors. Has there been a shift within that sort of mix?

Look, I think the ongoing mandates we've got, we still got demand there, so it is a [indiscernible]rose up. On the new inbound interest, there's still a lot around logistics industrial. We [Technical Difficulty] sort of core past value add part of the sector. And we're looking at probably some office strategies, value-add office strategies as well, but a lot of interest. We're seeing a lot of the Asian fund managers that really are turning away from China [Technical Difficulty] in Australia. So I think in the new year, this new year, we've seen a lot pickup in interest from those offshore groups that do want to expand in Asia, but they are only focusing on a couple of countries now.

Next question we have is from the line from Simon Chan from Morgan Stanley.

My first question, I was just wondering, how much worth of unlisted AUM expired last half. Actually a better question, how much worth of unlisted AUM is expiring this year in FY '23? And what insights can you give us as to what the plans are for those money? Like people put in redemptions [Technical Difficulty] roll them? Like how should we think about, that bucket of AUM.

Look, we can't have fairly exact number. Look, it really is a asset-by-asset fund last time sort of focused. We obviously, in those unlisted funds, if the term does come up, we make a recommendation to investors in our position, obviously the market and that particular sector. And in the vast majority of cases that the investors would back our recommendation, which it would either be a sale or an extension of that fund. We can come back to you with the exact amount of -- Tim can come back to you with the exact amount that is expiring up in a year or two. I think a lot -- as you know, Primewest did extend out a lot of the [ fair ] funds prior to listing. So that was 10 years from sort of circa 2018, 2019 and all of these are longer dated. But there are assets that come up and you have seen us sell some assets during the period where we think it is the right time to sell for particular reasons.

Right. Okay. Fair enough. I get that CNI itself is very well capitalized. Simon's presentation covered off on that. But just on -- across the whole platform, I think Slide 13 you have some metrics here. But can you give us a little bit more color, like, for example, what would be the range of gearing or ICR that we -- that you guys have across your unlisted platform?

Yes. Look, this was range across the platform, depending on whether you just put the old Centuria investments versus the old Primewest investments in Perth and even New Zealand has slightly different outcomes. I think the key thing that we've seen over the last [Technical Difficulty] where we've had pressure on ICR covenants in particular, single asset funds. We have been able to negotiate and reduce the ICR [Technical Difficulty] predominantly from 2 down to 1.75. And that has been a conducive conversation with the banks throughout the last 6 to 9 months.

Right. And would there be a lot of -- what percentage of your funds were under ICR pressure, you reckon?

It'll be very low. I mean we've got over 150 firms, and we're talking maybe somewhere between 5 and 10.

Okay. Okay. That's very good. My last question for you, guys. Just -- can you give some comments on your pipeline? I think you guys have about $1 billion worth of gross activity last half. Jason, in his presentation mentioned that Ag has probably got another $250 million to $300 million to go over the next few months. But just pipeline in general, what was it telling you for other sectors over the remainder of FY '23?

Yes. So yes, as mentioned Ag, I think a very strong pipeline. We're in discussions on a number of assets there. Obviously, credit, we think that we have another strong 6 months on the credit side. We're just that we're seeing a large number of very high quality lends come through, since the banks have tightened up and taking bit longer for them to approve. So we are seeing some really good first mortgage, lightly geared high-quality assets. So that will be, I think, another strong 6 months there. And then look, we're just -- as you know, we're very opportunistic on the value-add side. So as we see noncore portfolios coming to the market, if we think we can provide attractive returns for investors, we will step in there. We are expecting transactional or market activity pick up over the next couple of months and particularly in office. So we're definitely waiting and if we see asset which we can said we can add value through repositioning [Technical Difficulty] Talking about other side, obviously, as I said, we've still got a chunk of the mandate those need retail mandates [Technical Difficulty] seeing opportunities come through there. So we would like to fill that up as well.

The next question comes from the line of Edward Day from MA Financial Group.

Just a couple from me. Firstly, from memory, I think the ATP fund is coming up in this half. Can you just give us some insight as to how you're thinking about that? And whether there's any assumed or embedded performance fee that's included in your guidance?

Yes. Look, Simon can talk to the [ Steve ]. But look, we're currently talking to the main investors, that's obviously been one of our [Technical Difficulty] funds, but I've had a return of capital of close to half your initial investments and [Technical Difficulty] now I think over 20%. So there's a lot of happy investors there. How the extension works, as I mentioned, we make a recommendation for the second extension, it's got to be closer to being unanimous, but we can take out any minority partners [indiscernible] that don't want to extend it, it is a vast majority to do. So at the moment, we're just talking with investors, seeing what they want to do, and then we'll make a decision with them over the next month or two.

And just in relation to the fee itself. I mean it's been recorded in line with the current stated policies that we discussed over the years. And there's still a piece left to be booked that represents that 30-odd percent, I think, that we talked about earlier.

And looking at the asset in that small portfolio, they are very well positioned as life sciences assets. And obviously, there's not a lot of that in Australia currently. So we think if we were to transact them, they would be divided out there for that type of asset.

Okay. And then just on -- it looks like CNI balance sheet has got about 35% of the Allendale Square fund, the industrial fund. But just can we hear your thoughts on how that sell down process is going? And then also, just with Sundrop as to when that settles, and how that fundraising process is going?

So Sundrop first that in February has commenced basically this week. So we expect that to go pretty well from early indications -- and obviously, the plan is to get that capital recycle back into balance sheet. Allendale Square, yes, there is some there. It has reduced through the last month. What we've seen, particularly as well of the large Perth-based investors, they did want to see a little bit of leasing progress in the building and some of these investors consume very large sums. And the good news is that we are -- we've had some great lease to success already. So the great terms on one of the lower levels in that building. I think the regional [Technical Difficulty] 5-year deal at 16 under assumed incentives as well to a global tenant. So I think as this good news filters through the sell-down will just pick up. So [Technical Difficulty] a balance sheet for a little while, but we will continue to sell down over the next period.

The next question comes from the line of James Druce from CLSA.

Just wondering what you're assuming for sort of in the second half in terms of revaluations, divestments. You've already talked about acquisitions and developments.

I think on the reveals for the second 6 months, I mean, most of the -- at least a third of the portfolio has been well announced through CIP and COF on what happened on revals. We are very, extremely flat, maybe a little bit down on the cost, reasonably flat on CIP. I think that is consistent across the Australian portfolio. The New Zealand portfolio comes through a revaluation cycle at the end of March, so that may have a -- be a bit further down, but I think that's a reasonable values being held up at the moment. And on divestments, there's not a lot that we'd assume. There's 2 or 3 per ex Primewest assets that we're looking at possibly taking to market, but that's about it.

Okay, and then development...

On developments completing the next sort of 2 months is not a lot of actual [indiscernible] which is going to be hopefully settled in a day.

Yes, they should settle hopefully by the end [Technical Difficulty] . But I would expect probably a similar number to watch in the first 6 months. So that 250 mark by the end of June.