Centuria Capital Group (CNI) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Centuria Capital Group FY '24 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. John McBain, Centuria Capital Group Joint CEO. Please go ahead.

Good morning. Thank you for joining us. I'm John McBain, Joint Chief Executive, Centuria Capital. And together with Simon Holt, our Chief Financial Officer; and Tim Mitchell, Head of Investor Relations; we are pleased to present Centuria's results for the FY '24 year. This morning I'll give an overview of the group, our FY '24 highlights, comments regarding strategy and outlook; Simon will give a finance update; and then I'll present the real estate and funds management information. Starting on Slide 3. Centuria pays its respects to the traditional owners of the lands in Australia and New Zealand, to their respective cultures and their Elders past and present. Moving to Slide 5. This slide provides an overview of the group illustrating the scale and diversification throughout Australasia with assets under management stabilized presently at $21.1 billion. Approximately 2/3 of the real estate platform was weighted towards unlisted funds, the balance comprising 3 listed REITs. Our unlisted real estate is supported by an extensive distribution network and complemented by expanding institutional investment partnerships. The group has maintained key stakes in Centuria's REITs, in our joint venture partnerships and our institutional mandates as well as our unlisted funds. Turning to Slide 6. As of 30 June '24, our group AUM rose to $21.1 billion, 96% of which comprised real estate funds. Our alternative real estate funds expanded with real estate finance increasing 46% to $1.9 billion and agriculture increasing 21% to approximately $640 million. These alternatives attracted $1.15 billion of capital inflows across our unlisted funds, including $550 million from wholesale and retail investors and $600 million from offshore institutions. During the year, we executed $2.3 billion of transactional activity including $1.3 billion of acquisitions and real estate finance transactions together with $1 billion of divestments and real estate finance repayments. As you'll be aware, this activity was transacted in a challenging operating market. Unsurprisingly, capital management remained a key focus during FY '24 and it's pleasing to report the group operating gearing reduced to 12.1%. Property remains a long-term investment, which is why we look to generate future returns for securityholders. Accordingly, we've identified a $2.2 billion development pipeline, almost half of which is weighted to the strongly performing industrial sectors. Development projects aim to provide underlying assets for both our listed and unlisted funds. Centuria has balance sheet to support select investment opportunities, including corporate acquisitions particularly in alternative markets characterized by strong tailwinds and limited competition. During the period, we increased our investment in Centuria Bass to 80% and we begin FY '25 with a 50% stake in liquid immersion cooling edge data center provider, ResetData. I'll come back to this. It's pleasing to confirm Centuria has delivered within its FY '24 earnings guidance range with the final operating earnings per security of $0.117 and a full year distribution of $0.10 per security. Moving to Slide 7. During the period, Centuria's real estate platform continued to grow organically with both real estate equity and real estate finance transactions. In particular, our unlisted platform grew across both equity and real estate funds. The latter included 23 new single asset vehicles, 2 diversified wholesale funds and our first New Zealand real estate finance offering, which was oversubscribed. Equity funds expanded with our open-ended agricultural fund CAF attracting new investment following the acquisition of 2 high quality glasshouse assets. The single asset Halls Head Centuria Wholesale fund was also heavily oversubscribed. To capture countercyclical opportunities and increased appetite from wholesale investors, the Australian Select Opportunities Fund and the Centuria New Zealand Value-Add Fund #2 were both successfully launched. Complementing these inflows was institutional capital from U.S. private investment firm Starwood Capital. They committed a $0.5 billion industrial mandate of the Last Mile Logistics Partnership. Additionally, Global Bank UBS provided an initial $100 million senior secured commitment for a new loan warehouse facility to support our Centuria Bass real estate credit business. Centuria's corporate acquisition activity continues to provide a runway for future fund and profit growth. Our increased interest in Centuria Bass reflects an FY '24 earnings multiple of approximately 4x taking into account total acquisition costs for our 80% interest. Looking ahead, in a similar fashion we anticipate ResetData to be accretive from FY '26 onward. Slide 8. Throughout the past 5 years, Centuria has demonstrated continuous growth. In the past year, we have maintained the size of our assets under management, which is a meaningful feat in the current operating environment. That underlines the relevance and foresight in having a diversified platform by real estate sector, funds type, investor profile, geographic reach and sources of income. For example, our early entry into the real estate credit market has been 1 very instrumental factor in this regard. Turning to Slide 9, growth in alternatives. Looking more closely at our alternative assets, more than 20% of the group's real estate platform is now weighted to alternative assets, which have collectively increased AUM by $4.2 billion since 2019. This increase includes more than $3 billion of organic growth and is supported by strong investment appetite from institutional capital and private investors alike. Slide 10, Centuria Bass. Nonbank private credit tailwinds continue to be elevated in this high interest rate environment. Since Centuria's initial investment in Centuria Bass, its AUM has increased more than sixfold and the compound annual growth rate of its operating profit has risen 92% to $24.7 million. Centuria Bass is a good example of the embodiment of the group's M&A strategy or philosophy. That is securing an early mover advantage in the alternative sector, benefit from strong tailwinds, limited competition and most importantly, has the ability to scale significantly on an ongoing fashion. Slide 11, I want to talk about ResetData a little more, our most recent corporate acquisition. So recently we secured a 50% investment in new generation data server provider ResetData. This group utilizes liquid immersion cooling technology to create edge data centers to have it within existing office buildings rather than traditional outer setting air-cooled facilities. The ResetData deal is real estate based as it provides contemporary solutions to solve for the data storage and cloud requirements of office tenants. Our interest in ResetData allows us to be at the forefront of this new technology, unlocking revenue stream potential for our managed office assets as well as unlocking a new OpCo vehicle for CNI, which we believe will grow to be a meaningful component of group revenue. Moving to Slide 12, ESG. We continue to progress our new sustainability framework and set targets. On the environmental front, we delivered Centuria New Zealand's first XRB climate related disclosures. These are coming to Australia in 2027 and I can assure everyone on the line that a lot of work is associated with it. We commenced electrification across 50,000 square meters of COF's portfolio reducing gas and diesel reliance towards the equivalent of 100% renewable energy across our corporate offices reducing our greenhouse gas emissions and installed 1.125 kilowatts of solar systems across our real estate platform. On the social front, our Centurians volunteered 450 hours in the community and raised more than $112,000 for charities. Significantly, approximately 9 out of 10 Centurians would recommend our company as a great place to work. It's also my pleasure to confirm that female representation across Centuria's Board members has risen to 43%. I believe we have the only female listed fund manager in the country and we have recently promoted 1 of our in-house ladies as National Facilities Manager. Not quite a first, but a very real opportunity and one we were very pleased to take. Finally, on the governance front, Centurians have completed more than 9,000 hours of training across compliance, cybersecurity, risk and safety and we're looking to release our next Sustainability Report in November. Slide 13, vision on execution. Being a leading Australasian real estate funds manager, we manage our principal vision executing attractive core and alternative property and credit investment opportunities for both new and existing distribution networks as well as institutions. We will focus on further scaling our alternative vehicles to unlock new income streams and provide really a clear point of difference for investors for our platform and compelling returns for our securityholders. Centuria benefits from an experienced management team to maintain a disciplined strategic approach to capital management with the aim of continuing our upward growth trajectory as financial markets stabilize. Slide 14. Centuria provides guidance at levels that reflect our best estimate of earnings based on prevailing market conditions. We provide FY '25 operating guidance, our EPS guidance of $0.12 per security and distribution guidance of $0.104 per security. I'll now hand you over to our Chief Financial Officer, Simon Holt, who will walk you through our financial results.

Thanks, John, and good morning, everyone. Slide 16 shows our statutory and operating earnings and distributions for the full year as well as guidance for the 2025 financial year. I am pleased to report that despite the prevailing inflationary and interest rate pressures in the market in 2024, the group delivered a full year statutory net profit after tax of $102.2 million and an operating NPAT of $94.7 million. This translated to an operating EPS of $0.117 per security within our FY '24 guidance range of $0.115 to $0.12. This solid operating performance delivered a full year distribution of $0.10 per stapled security, which was also in line with guidance and demonstrate the underlying quality of earnings with operating cash flows for the year exceeding the group's reported operating net profit after tax. Looking into FY '25, both our operating earnings guidance of $0.12 per security and our distribution guidance of $0.104 per security does represent an increase in FY '24 and underscores our continued confidence in the resilience and earnings potential of the group. Moving to Slide 17, which outlines the key components of our operating earnings. Operating profits attributable to our property funds management segment reduced by $7.5 million primarily due to lower fees from subdued transaction markets and adjustments attributable to the lower property valuations. This decline in property valuations combined with several fund term extensions during the year has resulted in $6 million of recognized performance fees. The group has also collected $6 million in performance fee cash during that period as well and based on property valuations, latent unrecognized performance fees of $112 million were noted at the FY '24 period end. The co-investment operating segment prior to the impact of fair market valuations delivered an operating result before tax of $54 million, up $1.6 million compared with the prior year. This reflected an increase in earnings sourced from the balance sheet support extended to the fast-growing Centuria Bass business and an example of how active recycling and redeployment of capital in support of our business lines can contribute to operating earnings resilience in our platform. Development net earnings decreased to $1.2 million primarily due to a decline in the number of active projects and a number of existing projects completed in the first half of FY '24. It is important to note that despite this lower segment profitability, the group continues to utilize its in-house development capability across other refurbishment initiatives and in supporting Centuria Bass credit with its due diligence processes. As a real estate fund manager, Centuria continues to selectively bring online development opportunities at appropriate times that will provide new generation properties for our underlying funds. Centuria's development business is well positioned to contribute to future profitability of the group and has benefited from the addition of $1 billion of industrial projects being added to the group's future pipeline during FY '24. Moving on to the property and development finance segment. This segment contributed $13.4 million in operating profitability for the year and represents an uplift in excess of 100% compared with the prior year. The increase in profitability reflects the continued growth in AUM increasing to $1.9 billion during the year as well as the increase in the group's ownership stake from 50% to 80% as announced in April 2024. The growth in the business' AUM is reflective of growing investor appetite for well-sourced real estate finance investment products along with the group's active management distribution capability and select balance sheet support over time. The investment bond management segment continues to consistently contribute to the operating profitability of the group, delivering an operating profit of $3.6 million. This increased profitably reflects improved fund inflows from across segments, recently expanded product offerings as well as improved investment market and increasing AUM. The group's reported corporate overheads have remained largely in line with the prior year increasing $0.8 million due to an expansion of the group's compliance and risk management resources as well as the impact of ongoing inflationary impacts. Moving to the group's finance costs, which decreased to $32.6 million for FY '24. This has been a noteworthy achievement and is a result of ongoing active management across the group's loan book despite the higher interest rate environment that has experienced several rate increases over recent periods. Finally, the noted decline in operating tax expense from $18.1 million in FY '23 to $9 million for the current year reflects a change in the relative percentage mix of earnings away from the group's tax corporate structure, which was proportionately impacted by lower performance fees and operating outcomes as well as an increase in interest deductions associated with the higher funding costs on the group's core stapled balance. The combination of the P&L movement has resulted in the group delivering an operating earnings per security of $0.115 for the period. Slide 18 outlines our transaction fee revenue mix across our diversified platform, including acquisition, financing and underwriting and sales fees. Notwithstanding the backdrop of challenging economic conditions, the group has undertaken $2.3 billion of total gross transactional activity for the year, including $1.3 billion of gross real estate activity and $1 billion in divestments and repayments. Although property transaction fees decreased as a result of the subdued nature of the current property transaction market, the decrease has been substantially offset by the increases in the group's earnings associated with the lending activity of Centuria Bass Capital. And as I discussed earlier, our interest in the business increased from 50% to 80% contributing $13.4 million before tax to the operating earnings of the group. This was achieved by additional financing of $780 million extended to property developers as well as successful completion of $400 million in real estate financing from the prior years. Turning to the balance sheet. We're pleased to report that the group's operating balance sheet has remained resilient during the year with net asset value per security increasing to $1.79 per security, up from $1.77 at 30 June 2023. As shown by the group's current investment earnings for the year, Centuria continues to utilize its strong balance sheet to support the underlying business with over $280 million of cash realized from the sale and recycling of balance sheet assets during the year. The operating gearing ratio of 12.1% along with the balance sheet book gearing at 35.1% remains well within the group's tolerances and reflects our focus on capital management while utilizing a flexible balance sheet to provide support to the business as required. This flexibility is further demonstrated by the extension of the group's revolving loan Note A to FY '27, which adds to the group's total available cash and undrawn debt of $266.5 million at the end of the year. And also during the year, the group fully repaid its '25 debt facilities for $29 million and additionally negotiated 2 new loans for $100 million that mature in FY '29. What is also important to note, our cash flow from operating activities is $122.7 million for the year. This is demonstrating the quality of our earnings and the cash generating capabilities of the group. Turning to Slide 20. Centuria continues to recycle its sources of debt capital across the platform, which includes the recycling of existing exposures with supportive finances. And through the course of FY '24, variation in extensions of 40% of all funds has led to strong relationships and understanding of lender appetite. This includes refinancing 68% of the group's office platform with positive outcomes and engagement from lenders. The group continues to actively manage debt across the platform to ensure optimal financing outcomes demonstrated by the platform topping up its hedging profiles as market opportunities present themselves. Pleasingly, the average margin across the group is 175 bps. In addition, during the period, we note that 3 of our unlisted funds have recorded LVRs of close to 60%. These 3 funds represent approximately 1% of the group's overall platform and we continue to actively manage outcomes for these funds. Centuria's remaining funds continue to operate within tolerant LVR ranges and the group continues to stress test covenant headroom on a regular basis. We will continue to take a prudent approach to the early extension of debt maturities and taking tenure where possible. The duration metrics presented here will shorten over time in line with various fund strategies and term maturities we oversee today. Now moving to Slide 21. Our co-investments and interest in Centuria's underlying funds continues to be a strategic focus of the group with $675 million capital invested in financial assets and interest in associates or JVs at the end of the year. $419 million or 62% of this capital is invested in our listed vehicles; CIP, COF and Asset Plus; aligning CNI as the single latest unitholder in each of these funds. It should be noted that these interests are carried at simple investments marked to the spot price of each fund at the balance date as opposed to the respective NPA of each fund. Of the remaining capital deployed as part of the co-investment segment, approximately 30% is being deployed across certain retail and wholesale funds with a further 7% across institutional partnerships. The group will continue to utilize its balance sheet to selectively support establishment of new and existing funds or align with certain capital partners as a means to grow our funds management platform through normal course of business. This is further demonstrated through the recycling of balance sheet assets and since the start of FY '23, the group has realized and redeployed in excess of $0.5 billion. Now just to spend a little bit more time on Centuria's investment in ResetData and talking a little bit about the data center ecosystem so that we get a bit of a clearer picture of the opportunity this presents to us as a business. As John mentioned earlier, Centuria is implementing a unique dual PropCo and OpCo approach to delivering its edge data center strategy. This slide illustrates the symbiotic relationship between the PropCo and OpCo strategies with each representing an essential component of the value chain in Centuria's edge liquid immersion cooled data center ecosystem. This value chain enabled through the ResetData acquisition will leverage latent access to the electricity grid and underutilized real estate office spaces providing an alternative for capital-intensive traditional air cooled data centers. This strategy is expected to deliver lower latency for customers offering bespoke hardware stack and a proprietary cloud platform. Also of note are the ResetData active partnerships, which includes the likes of Dell, NVIDIA, Submer and Unicom Engineering, which are complemented with original equipment manufacturer or OEM licensing for its liquid immersion cooling technology. Moving on to Slide 23. This slide really outlines the benefits which Centuria's integrated liquid immersion technology will deliver as a low-cost alternative to traditional air cooled data centers. I've noted the integrated nature of the liquid cooling technology, which will be implemented, allowing the capture and recycling of fees generated by these servers in providing building amenities including heating and infrastructure. This along with a noted decrease in energy consumption in addition to reduce hardware lifetime failure rates will significantly reduce cost as well as improvements -- improved sustainability metrics for our tenants and data service customers. I'll now hand over to John, who'll take you through CNI's divisional highlights.

Thanks, Simon. Turning to Slide 25. This slide outlines our 7 real estate verticals. These make up $20 billion real estate platform. And I think our platform diversification shows it's clear it's across core and noncore real estate sectors. We think this distinguishes us from our peers. Moving to Slide 26. 1/3 of our real estate platform is weighted to the office sector largely within near city and metropolitan markets and in addition in CBD. These are predominantly modern buildings that provide significant sustainability credentials and are well located near transport hubs. 14% of our total office net lettable area was leased during FY '24, more than 105,000 square meters of high quality office. This is a testimony to the strength of Centuria's active in-house management and indicative of the demand for prime younger assets. Also throughout the period, Centuria refinanced $1.7 billion of debt across our office assets, which accounts for 68% of that vertical. Through further proactive capital management, we divested $154 million of noncore offices with proceeds largely used to reduce debt. These divestments along with cap rate movements to our office portfolio declined by $8.7 billion to $6.7 billion. Our office assets collectively provided 6.6% weighted average cap rate, a robust 4.1 year WALE and an average 90% occupancy. Centuria aims to address some of this vacancy through ResetData's edge data centers, which can fit within existing office templates and provide the ability to generate significantly higher rental income compared with typical office occupants. Our first edge data center is committed and anticipated at COF's 818 Bourke Street in Melbourne's Docklands. Turning to industrial on Slide 27. Our industrial platform increased to $6 billion during the period accounting for approximately 1/3 of the real estate platform. Industrial sector benefits from persistent talent enabling Centuria at least more than 348,000 square meters during FY '24. In particular, our pure-play industrial fund CIP achieved record average re-leasing spreads of 42% during the period. These spreads refer to the difference in rental income from expired lease and a new lease on the same property. Across our industrial platform, almost 1/5 of leases expire in the next 2 years providing further opportunities to capture positive rent revisions solving strong occupier demand and limited supply. To further capture sector tailwinds and continuous occupier demand, our in-house development team has identified $1 billion industrial development pipeline, which aims to deliver throughout a 5-year period. As mentioned earlier, encouraging sector fundamentals tracked further institutional capital. Starwood committing to a $500 million mandate, of which 30% has been allocated. Centuria's industrial assets collectively provide a high 98% occupancy, a strong 6.9 year WALE and a 5.95% weighted average cap rate. Turning to retail on Slide 28. Our retail vertical focuses on large format retail and daily needs retail, which continue to provide compelling tailwinds. More than 93,000 square meters were leased across these sectors during the period achieving average re-leasing spreads of 5%. In particular, large format assets provide a collective 98% occupancy, a 4-year WALE and a 6.19% weighted average cap rate. Daily needs assets provided 97% occupancy, a 5.8-year WALE and a 6.3% weighted average cap rate. Total retail AUM increased during the period to $3.2 billion. However, $112 million of divestments were executed to reduce debt and improve the overall quality of the underlying portfolio. Turning to real estate finance on Slide 29. Centuria Bass continued to scale its business during FY '24 with 2 diversified wholesale funds and more than 135 loan originations successfully launched. Our early investment in the real estate private credit sector has helped capture nonbank finance tailwinds in the domestic property middle market, which has limited competition. The $100 million senior secured commitment from UBS broadened capital sources beyond the wholesale investor market and we anticipate further institutional commitments as the private credit sector gains momentum. Having UBS as a financing partner assists Centuria Bass providing finance on short-term loans less than 24 months. This team will continue to focus on the often overlooked middle market real estate finance sector and its loan book comprises largely of first-tier finance with a weighting to the residential sector. Turning to healthcare on Slide 30. Our healthcare property platform was presented with a challenging operating environment during FY '24 and affected by wider sector challenges within Australia's health care sector. Centuria has a $320 million committed health care property development pipeline that's geographically dispersed across Australia. Within it, our development for Centuria prime partnership, an institutional partnership between Centuria and a vehicle sponsored by Morgan Stanley Real Estate investing. Healthcare AUM was impacted by cap rate movements along with more than $160 million of noncore divestments. These divestments included noncore properties as well as underlying assets within funds reaching their full term. However, Centuria Healthcare remains committed to real estate that delivers efficient sustainable models of care and during the period over 10,500 square meters was leased. Our health care assets are underpinned by very robust tenant covenants with 88% of leases being net or triple net meaning maintenance and associated maintenance expenditure remains a responsibility of the operator. Furthermore, 43% of leases are CPI-linked. Collectively, our health care real estate assets provide a healthy 97% occupancy, a strong 10.7 year WALE and a 5.95% weighted average cap rate. Agriculture on Slide 31. Again another example of early mover advantage in the protected cropping agriculture real estate. This has provided a platform -- this platform has significant growth as this vertical continues to scale with limited peer competition. The acquisition of P'Petual's South Australia glasshouse and the Katanga Fresh glasshouse in Victoria and a further glasshouse in New Zealand contributed to AUM increasing to circa $640 million. All agricultural assets are backed by long-term net and triple net leases ensuring limited expenditure for the funds. Our agricultural assets provide a collective 13.3-year WALE, 100% occupancy and a 6.3% weighted average cap rate. Unrelenting demand for fresh produce driven by Australia and New Zealand's rising population and expanding Asian demand provides incredibly strong tailwinds for sustainable agricultural real estate and we will continue to build this vertical. Discussing unlisted property on Slide 32. As mentioned, 2/3 of our real estate funds are weighted to the unlisted sector. This slide illustrates the diversification grid and range of our unlisted platform by capital sources, by fund type and real estate sector. Our unlisted funds service more than 14,000 investors with a growing percentage from the institutional sector. Significantly over 1/3 of our unlisted funds have no expiry date, providing opportunities to deliver through market funds management. Centuria's unlisted platform continues to provide securityholders with ongoing performance fees and despite FY '24 presenting difficult operating conditions, Centuria generated $1.5 million of unlisted capital inflows and often are overlooked fundamental strength of the Centuria platform. These legacy investors continue to invest in Centuria products while traditional equity sources dried up for other fund managers. Finally, let's turn to Slide 33 and our REITs. Centuria actively manages Australia's largest listed pure-play industrial and office REITs. As mentioned, Centuria Industrial CIP accelerated its re-leasing spreads 42% across over 300,000 meters of leasing and announced a $1 million development pipeline. Capital management initiatives saw CIP divest $120 million of noncore assets and hedge 93% of its debt with gearing at 34.5% with no debt expiring before FY '26. CIP maintained 97% occupancy and a 7.6 year WALE across its portfolio of 89 assets worth $3.9 billion. Centuria Office REIT COF divested 4 noncore properties as on their prevailing book values using proceeds to repay debt. COF retained strong liquidity with $862 million of debt refinanced and no debt expiring before FY '28. COF recorded balance sheet gearing at 41.3% and was 63% hedged as at June 2024. The office REIT portfolio comprised of 19 high quality assets worth $2 billion, a 4.3-year WALE and 93% occupancy and most importantly, in the current ADM an average age of 70 years so not too many old boilers. That concludes the formal presentation. I'll now hand back to the operator to commence Q&A. Thank you for dialing in to today's presentation.

[Operator Instructions] Your first question comes from Steven Tjia with Baron Joey.

Could you please talk us through some of the key drivers of your guidance, things like performance fees and development agent fees for '25?

Look, there's a couple of small elements. I mean I think from a performance fee point of view, it's relatively flat. It might be a little bit higher for '25. Our view is probably in excess of 20% EBIT growth in the property and development finance, the Centuria Bass business. And so the other element to that is probably on the transaction side still a bit subdued, but I think hopefully given the recent market changes in interest rates and forward-looking hedges, could be a good opportunity.

And maybe just on private credit, how equity inflow is kind of tracking into FY '25 and expectations of AUM for Centuria Bass of '25?

I think it's a slightly more difficult business to measure by AUM. I mean it's grown pretty spectacularly to $1.9 billion and we've made a statement that we think that the EBIT will grow to at least 20%. So I think that's more guidance than we've given in the past. But where AUM will actually end up, clearly it will be higher than $1.9 billion. We're not proposing it double because these terms are relatively short. We don't need it. We don't want our loans out forever. We want them coming back. So they're like really short property [ tenants ], if you like. Whereas our property tenants tend to last for years and years, these will last for 18 months or 2 years. But look, so not quite doubling, perhaps something like that.

Your next question comes from Simon Chan with Morgan Stanley.

John and Simon, now that the cash has gone out the door and you've paid for ResetData, I was wondering if you thought about it little bit more. Like you signed the 600 meters of lease in 818. Just wondering have you guys thought about what the potential is across your Centuria Office platform like realistically how many meters could you be leasing to these edge data center type equipment?

Thanks for the question, Simon. Firstly, we thought about it a lot before the money went out the door not after. And look, we're reviewing the portfolios at the moment. Within our portfolio, I'm pretty sure Jason told me there are between 12 and 14 properties that we thought looked immediately suitable and to be suitable would depend on their geographic location. Most importantly, their unutilized potential electrical power supply. And so out of all the portfolio, they're the ones that came to attention straightaway. That does not mean that there will be other properties within the portfolios that will be suitable where we can gain extra supply from the energy providers. But our intention is not to limit our inquiry or potential marketing just through our portfolio. We think our reputation in the market, which has been built over 30 years as business founders, and our relationships with the other portfolio managers is good enough that we believe we can approach a lot of other landlords. We've received significant onstream inquiry. Because where this untapped power potential exists, I mean this will be an obvious route for us. The data store for climate in Australia is growing over 30% per annum where it looks like supply is under 6% per annum. And anyone who thinks that AI and chat might continue with explosive growth really isn't really a [ laptop ]. So look, and you combine all that with the fact that we now know NVIDIA designing any more new chips for air cooled data centers simply because the heat loads of these chips are just too high to be cooled by air. We're certainly not suggesting that any of the participants globally in the data center market, the fact that not at all. We're just saying no one's really thought of concentrating on people who acquire very high data density, who want to operate these brand new chips, every chip from now on is going to be hotter and hotter and can fit these far closer to the operations. So anyone who's in graphics, design, trading and then the cloud is effectively coming back into the server room. I won't go on any further because if you start, Simon, I'll give you an hour on it.

Okay. So I'll just move on to my next question then. During your presentation, you mentioned you raised $1.5 billion of capital during the year, half of which is [ insta ] capital, et cetera. That's the gross number. What about outflows? What were the outflows during the year and which sort of platforms were they on?

Well, there's really only 2 funds which have outflows. As you know that we answered this question so many times, but I'm not suggesting it's inappropriate to ask it. But they are our diversified funds and I don't know if we've got the number of outflows on them. Somewhere between 6% and 10% for each. So that's our health care diversified fund and what we call a diversified fund, which is principally office with some industrial. I think the health care fund at the last totally race for its limited redemption facility is stuck on 14% and over half of that's 1 ongoing legacy investor who is just wanting to convert to REITs and the health care -- the other investor is circa 6% I think, which we don't think is that high to be honest with you.

Millions of dollars, John, like in terms of millions? Like how much does that equate to?

Simon, we can get that figure to you, but it's not a very big figure. I'll get Tim to get it to you.

Your next question comes from Solomon Zhang with JPMorgan.

Just 1 question around the net tangible asset backing. Just looking at Appendix 4E. It fell quite significantly half on half down 28% or 36%. I understand there is some fair value movements impacting that, but it is a big move. Could you just help us reconcile why that half on half move was so large?

The reason that net asset, I'm going to answer it slightly differently, net asset value has gone up is as a result of buying Bass. In terms of the net asset number going down, that is an outcome because once we report it, we're very focused on the net asset value and where that position is at and we have obviously grown. The issuance of equity has delivered also as a result the intangible number. So you've got all units on issue so your NTA will come down. But it is really the acquisition of Bass that's playing out in that conversation.

Got you. And maybe just generally just a comment on the demand for investment in office assets, whether that be opportunistic or otherwise and when you're expecting this to recover? Is the risk award to retail, wholesale, institutional capital or what are they waiting for?

Look, everyone's got a different opinion on this. But I think our comment on the office markets in Australia is firstly, their performance since COVID I think has been better than we might have expected. We're sitting on COF 92.5% leased and just leased over 100,000 square meters. So our problem hasn't been so much that people might occupy offices and renew leases in offices or not even rent growth in most of the centers. There's a couple of pockets in the country we've got problems with. One would be Docklands. Victoria generally I think is very, very slow to recover, but we don't have a massive AUM footprint there. So I think in terms of performance like hard core performance metrics, I've been in real estate over 30 years, I would think a normal healthy office occupancy step would be 95%. So we're 2.5% of that. I think it's a flesh wound. The more important wound is the global sentiment towards office and this isn't always capable of being supported by some sort of performance metric. And it's so pleasing to see just in the last few weeks -- before I go on to the sentiment over the last few weeks. I've listened to other commentators, all my other friends in the marketplace talking about old boilers and we have one of the youngest office portfolios in the whole country. I'm sitting in an office block that's 35 years old, but it's supposed to be a pretty good office block. Our office blocks are not old and apart from the first CBD where we do have quite a few CBD buildings. Generally we love playing in the decentralized area. We love playing in neighborly type locations. So in terms of sentiment, I think you've seen a big turn in the last couple of months with the New South Wales government asking its staff to just please come back to work. And also there's no question certainly in Sydney CBD, the activity levels and physical occupancy levels have been great. And I think Belinda described it really well in some of our interviews with COF. I think people who run these offices want to get everyone in. They're now finding some of the real harm that's being done by people refusing to come into the office at all. It's impossible to have a culture. It's impossible to get your interns aligned with your philosophies. And I think it's settled down. So in terms of where that will impact values, are we cautious about FY '25? We're seeing cash rates coming down in New Zealand, I won't go on too much. But I was amazed to see term deposit rates from our friendly banks who we've got great relationship with dropping immediately in Australia. We don't know what the prospect for cash rate reductions are in Australia. So there's going to be a big turn in sentiment. If someone asked a question about New Zealand, I actually love to say what's happening in New Zealand right now with cash rates falling.

Maybe just to ask the question another way. Are you actually deploying -- in your opportunistic funds that you've raised, are you actually deploying in office right now selectively?

In FY '24 we did it, but we've got a couple of people concentrating particularly in institutional capital and we're seeing a growing interest and demand from them waiting for that moment to occur. The problem is it's getting back to what I tried to answer the question before. If metrics and the performance and the huge discounts that were supposed to be there based on this global sentiment had presented cheap offices, our company and all our competitors would have been in there buying thousands of them. The values just didn't drop that much and not enough to make them very compelling as they were during the GFC for example where we bought 3 or 4 CBD office buildings. Anyone who's covered us for more than 10 years will know what we were able to do with them. We have IRRs that were more than double digit, that were triples.

Your next question comes from Caleb Wheatley with Macquarie.

First question from me are just around the unlisted AUM. Conscious more than 50% of that has some expiry post 5 years. But for those that haven't expired within 5 years, can you just talk to any key expiries and early thoughts on being able to either extend or potential for wind up on those, please?

Thanks for the question, Caleb. As a group, what we find our unlisted funds, the determination clauses vary depending on what geography you're in. So in New Zealand, there is no expiry at all because that's just how they run that. In Perth when we bought Primewest, they just traded and extended all their funds by 10 years so they've got a lot to run. In the rest of the country, we probably have things like a 5- or 7-year term with a 2-year extension. In the current climate where we believe that it wouldn't be advantageous to crystallize an asset, we'll advise the investors of that. And in almost all cases, it's very hard for a single case over 30 years, but I wouldn't accept that advice. Occasionally if something comes to an absolute terminal end and we have no choice but to sell it, then what happens, we would offer it for sale. But even then if the alpha that's received isn't considered advantageous to securityholders, the asset won't be sold and it will be held until a more advantageous price is secured. There is no sort of [indiscernible], there is no flat earth that we're going to sell off the end of. I think 1 of the things that's been proven actually during this post COVID period is, when we look at sources of capital that have dried up like institutional capital, like ability rates, capital and equity capital markets; the 1 thing that not only have we not been worried about people terminating our unlisted funds, we've been raising capital in that market. Those investors have forgotten to stop investing. They just kept going.

Maybe to narrow the question. It doesn't sound like it, but is there any known expiries that will come in the next 12 months?

Look, with a portfolio of 120 unlisted funds, 140 I should say, you could expect there's probably 10 or so that might come up in the next financial period. But if they demonstrate good performance compared to the acquisition price and we believe in securityholders to sell them, we will. If not, we'll advise that turned over or rolled over. We have far more flexibility and our relationship with our business is so much closer than you might imagine. I know it's difficult. Don't forget this is a founder-led business where 2 people have been building this business for 30 years. So we know these investors, we know their children, we know their wives, their husbands; and if it did, we know to run through the [indiscernible]. They're actually looking to us for advice on what to do with a major asset. They do not want to squander their money and sell when it's an appropriate time.

Got it. And just my final question. Just a broader comment if you can on asset values across the portfolio. Conscious there was a fairly modest move over the second half of the year. I just would be keen to get your thoughts on how you're thinking about revaluation in office and industrial and in the broader real estate platform, please?

Look, as a group, I think we've seen the end of wholesale valuation decreases. I mean the valuers I think would be pretty responsible as have the banks. Certainly perhaps in the hated office sector, maybe some fund managers are holding really old properties that are unleased and will never be leased. You have more pressure on. I think if I look at COF at 92.5% leased, I don't think there's a lot of overrenting. I'd be very surprised, but it will depend a little bit on exactly what happens in Australia. We're hoping that after every country in the developed world starts decreasing their cash rates and controls inflation that at some point, Australia will catch up to that and that will be very supportive self-stabilizing office values. I think they're pretty stable. That would just give us a little bit more confidence in that area. I know that when we're looking at forecasting within our office portfolios and looking at office opportunities, a couple of things that happened here in Australia. Like swap rates if you look in the swap curve, people have been hedging like crazy. The feasibilities for acquiring office blocks to try and find something where you can add value to have become much easier in the last couple of weeks. So there's no doubt that the financial markets and interest rate curve is more attractive in GSAs. So when everyone is more capable of having a positive spread when they're acquiring all assets and offices included in that, that's supportive of people with old offices because they have the same spread issue. So it's happened slowly. But when the cash rate taxes start toppling, I think that will be really helpful. In New Zealand, they're looking at having another basically 100 points of reductions before Christmas. That's pretty major. We've already seen tenant deposit rates drop 40 bps or 80 bps in Australia just in sympathy. That's incredibly supportive for our unlisted business. You can imagine us, we're now more easy to provide a lower swap rate, a higher return for our funds and the relative return on the fund compared to simply having the money in cash exacerbates that delta. So that's exactly the sort of a thing we've been waiting for. So we're all pretty happy in the end. Sorry, that was another long answer.

Your next question comes from Tom Bodor with UBS.

Just 2 very quick ones for me. Retail investor appetite, you touched on the cash and tenant deposit rates coming down. How have fund flows been and have you seen any notable pickup since the sort of movement on rates?

Well, it only came down a few days ago, in fact I think it was 2 days ago. I think where we've seen the better -- and I'm pleased you asked the question. Where we're seeing a more immediate reaction is in New Zealand. So New Zealand where they dropped 25 bps of the cash rate albeit they were higher and tenant deposit rates started tumbling. We started getting a lot of retail feedback within New Zealand. A little bit too early for Australia at the moment. As I said, it's just a bit -- I think the banks only notified 48 hours ago, is that correct? 72 hours ago. But you can guarantee...

From 50 basis points to 100 basis points therefore or does it need to be more meaningful to get real pickup inflows from retail investors?

Look, no, I think just a bit more time. I think what will happen, Tom, is people get the effect -- I'm not an economist. But at some point, as I said, Australia will -- let's say it isn't, but it could be the only country in the Southern hemisphere, the developed world that hasn't reduced its cash rate because of inflation. But it will happen and when it starts happening, it's the sentiment that surrounds it. It will be the 25 bps. Then all the newspapers will start talking about the next 25 bps and the next 25 bps. And of course the banks have been incredibly patient and very good to deal with over this last period. They will be protecting themselves by dropping tenant deposit rates. That's already started happening. The curve is happening. And it's just if we had a retail offer out there right now, a brand new one, it would be a little bit easier ask. But I guarantee I mean the last retail offer we had for a property equity fund was Halls Head Central and I think we raised $42 million. It was like the old days and it's almost like people could see these reductions coming. We have $32 million of expressive interest in 48 hours and we raised $42 million in 5 or 6 days. That's kind of how we've been running the business for 30 years until COVID. So we're sort of kind of feeling, Tom, like we're getting out of jail, which is a good feeling.

Sure it is. Also just transactions secured, but not settled. You used to provide a number there. Is there anything of note or is it pretty limited at this point?

I think it's somewhere in the $160 million. Tom, there's $160 million that's exchanged and to be settled in FY '25.

Your next question comes from James Druce with CLSA.

I'll be quick. What should we be expecting for divestments this year across real estate funds around $1 billion last year?

Well, I mean of the $1 billion, there was $400 million that are related to the fast credit side of it so that's 40% of it and we'll see that and probably a bit more come through on that particular side of it. In terms of the property equity side of the business, look, it could be around the same of the difference being $600 million, it might be a little bit more. There are things that we're doing that we know that we're looking for investors to recycle some of those assets. So look, it will play out over the course of this year.

Okay. And just quickly, I just wanted to make sure I understood your comments before. You talked about putting some balance sheet capital to work for some new and established funds. I think you put a bit of money into Bass this year. What other options? What are you doing with the balance of your capital for other established funds over the next 12 months?

I mean when we make that statement, the 1 example I give is the agricultural fund where we're using our balance sheet in an established fund to buy an asset and then to get that recycled back through further equity raise over time. That's probably the biggest one in that conversation, but we do that from time to time. And it's more about -- it's still raising capital for a new asset per se that we're doing as opposed to having to top up for a fund that exists, which I think is where you were potentially asking the question from.

Not so much funds supporting existing funds, we don't do that. But I think institutional, I think we're quite close to a couple of new institutional mandates and they require a 5% or 10% co-investment and we believe that's an appropriate allocation -- appropriate use of our balance sheet. It might not quite meet our internal rate of return for a capital-light fund manager. But if we're going to play in that market, I would say we have to respect the rules.

Your next question comes from Edward Day with Moelis Australia.

Just a couple of quick ones. Firstly, on your credit book, are there any loans that are nonperforming or I guess on a watch list potentially becoming nonperforming?

I know you guys run a pretty big land book yourselves. There'll always be a loan that's not performing. We have a traffic light system and green, amber, red. How many loans there at the moment?

Very few that are in the amber red, but that is part of the business model that we operate. So there's not a lot of -- we don't have anything impacting the accounts on the consolidation. We haven't impacted any capital or reduced even the expected credit loss of any capital of any of those loans.

I think one of the benefits, Edward, of just being in the real estate market is we see a lot of the private participants suddenly just arrive on the market as if they're from out of space. I'm not sure if they know anything about the real estate market. So probably the amount of loans we turn down might be higher than other people. And the middle market area we play in, I would say Jason and I both on our Board, Simon on its investment committee and Simon is on the Board as well. We're asset leaders, aren't we? Really that's the most important thing for us. We don't want to be in things where we have to walk away from them if there's an issue. We want sufficient headroom to be able to go and sort it out ourselves.

That's clear. And just 1 more, if I may. Simon, in the past, I think you've provided an average LDR figure across your unlisted asset platform. Not look through, but just an average across the board there. Do you have an update as to what that is?

Well, I don't actually think. We've probably talked to it as opposed to putting in a presentation. But it'd be early 40s, it hasn't really changed too much. New Zealand is a bit lower, Australia a bit higher or at the moment actually sitting probably a little bit lower than unlisted in [ seawater ] assets. So early 40s.

There are no further questions at this time. I'll now hand back to Mr. McBain for closing remarks.

Thanks, everybody, for turning up. And if you got any further questions, please call Tim Mitchell and have a good day.

That does conclude our conference for today. Thank you for participating. You may now disconnect.