Centuria Capital Group (CNI) Earnings Call Transcript & Summary

Good morning, and thank you for joining. I'm John McBain, Joint Chief Executive of Centuria Capital; together with fellow Joint Chief Executive, Jason Huljich; and our Chief Financial Officer, Simon Holt, we're pleased to present our interim FY '25 results. Turning to Slide 3. Of course, we pay our respects to the traditional owners of the land in Australia and New Zealand, to their respective cultures and their elders past and present. This morning, I'll provide an overview of Centuria's performance for the interim period. Jason will provide an update on real estate, alternatives and the credit sector performance and Simon will set out our interim financial results. Moving to Slide 5. Centuria is one of Australia's most diverse ASX-listed externally managed real estate platforms, and the platform currently manages $20.5 billion in assets. This includes $5.9 billion of listed real estate, $13.7 billion of unlisted real estate and credit products and $0.9 billion of investment bonds. The recent introduction of ResetData to the group creates an exciting new and highly scalable segment, which sits at the intersection of real estate and technology. We will elaborate further on this. HY '25 highlights on Slide 6. Over the interim period, Centuria recorded $1.9 billion total transaction activity, which included $600 million of new capital and recorded a particularly strong performance from Centuria Bass Credit, growing its assets under management to $2.3 billion. Despite global and domestic market uncertainty, unlisted investor appetite remained robust, $400 million of capital raised from our unlisted investor network, along with increasing interest from institutional capital for deployment. Balance sheet gearing at period end was 14.5%, and the group delivered operating earnings of $0.062 per security together with a distribution of $0.052, both up on the prior corresponding period. ResetData is about to complete Australia's first sovereign public AI Factory supercomputer in a Centuria asset and has recently launched an AI Marketplace. These initiatives were unveiled recently at a major event hosting more than 200 investors and clients, and we were very pleased to see many of you in attendance. Explaining Reset a little more on Slide 7. During the first half, Centuria completed the acquisition of a 50% interest in ResetData, and we've now completed the onboarding of staff and systems integration. ResetData utilizes highly efficient and sustainable liquid immersion cooling, which employs in what is intended to be a series of sovereign AI Factories or supercomputers, the first of which is designated AI Factory 1 or a short AI-F1 and is located in Centuria asset in Victoria. These AI Factories employ the latest high-density NVIDIA H200 processing units, which are market-leading in terms of AI capability, machine learning and large language learning or in other words, inferencing. Centuria is unique in leveraging the unquestioned demand for AI processing power together with a real estate solution. And we believe that AI takeup in Australia, while still very much in its infancy, will grow immeasurably, making this a highly scalable business unit. ResetData's NVIDIA Cloud Partner status and its Dell Technologies Titanium Partner status affords us unparalleled access to the latest technology processes and hardware, and we are looking forward to completion of AI-F1 for the first factory in the final quarter of FY '25. Discussing ESG on Slide 8, we remain focused on ESG initiatives across the group. And during the period, we released our FY '24 voluntary climate-related disclosures, our sustainability report and revised framework. We continue to progress emissions targets, including the elimination of gas and diesel operations where practical, and we continue to enjoy strong levels of employee engagement, almost 9% of employees recommending Centuria as a great place to work. Turning to our strategic position on Slide 9. It's fair to say that going into FY '25, we may have been slightly cautious regarding the possibility of an immediate domestic economic turnaround. But we're reasonably vocal about viewing the first half as a lead up to a tipping point. I think that's been proven to be correct. A number of relevant factors are converging in relation to this, however. And Jason and I have very strong conviction that the Australian commercial real estate markets have dropped and are at an inflection point. One of these factors is the recent reductions in cash rates in Australia and New Zealand, the location of our core activities. These rate decreases, together with a strong prospect of further reductions improve and will continue to improve real estate fund returns relative to fixed interest or term deposit returns. And this is very quickly rebooting our unlisted real estate trust activity. This is a high-margin and core Centuria competency, which resonates strongly with our investor network, and Jason will speak to the speed with which this is occurring shortly. Another important area of convergence is the momentum towards return to the office. This momentum in conjunction with the high alternative construction cost of new office stock and together with the increased demand arising forecast population growth is rapidly changing sentiment back to commercial office. Centuria believes in Australia office, and we believe this commitment will be justified as these factors and others that Jason will discuss come into play. Equity capital markets too have an inflection point story. Experience tells us that as interest rates wane and economic conditions stabilize, this part of the real estate cycle promotes heightened rent prospects and tighter valuation capitalization rates. Of course, these conditions create a very positive environment for the Centuria REITs and for the creation of new Centuria REIT vehicles as well as broader opportunities for the nimble and well capitalized. Turning to outlook on Slide 10. So in summary, we believe that traditional unlisted real estate securitization markets in Australia and New Zealand are opening up very rapidly, which will increase transactional volumes. We're also confident that we can scale up the existing wholesale Centuria Bass Credit offerings. During the half, the UBS warehouse facility for Centuria Bass was $285 million, and there's strong interest in further institutional support for similar warehouse facilities. On Slide 11, I give a more granular view of where the management team believes we can scale activities up. So dealing with real estate equity, as I've mentioned, simply a higher volume of unlisted activity is anticipated. Also, we are in advanced planning stage regarding 2 sector-specific REITs in FY '26. Drilling down on real estate debt. So subject to favorable market conditions, we are also planning the establishment of a credit listed investment trust in FY '26. And as I've previously stated, we're on track for a plus 20% EBIT growth in this division in FY '25 relative to FY '24. ResetData, as I've stated, is Australia's first sovereign public AI Factory. And as I've stated, we think that AI demand will drive demand for compute capacity, driving a pipeline of AI Factories with directly related Centuria portfolio benefits. This is considered potentially Centuria's most scalable business with 10 further sites for AI Factories under consideration. Thank you. And I'll now hand you over to Jason for divisional overview.

Thank you, John, and good morning. Starting on Slide 13, which outlines our 7 real estate verticals that make up Centuria's $20 billion real estate platform. Our strong diversification across core and alternative real estate sectors distinguishes Centuria from its peers. Centuria's platform is positioned for growth and scalability allows for new investment products, funds and capital sources to be added as we identify further investment opportunities. Turning to our office platform on Slide 14, of which 1/3 is held in our listed fund and 2/3 in our unlisted platform. In total, our office assets account for less than 1/3 of Centuria's overall platform. During the period, we began to see a turning point in domestic office markets, which signaled improving tailwinds over the medium term. This was largely driven by increasing adoption of office-centric work mandates, population growth underpinning a large white collar workforce and limited new office developments tapering future supply, all of which point to strong future tenant demand and shifting investment sentiment towards the office sector. Looking more closely at new office supply, we estimate the total replacement cost of any built has increased by at least 40% in the past 4 or 5 years. On a hypothetical development feasibility for an A-Grade Sydney metro office building, we estimate total cost to exceed $15,000 per square meter, which is more than double what cost current valuation is, which averages under $7,000 a square meter. This goes some way to explain why there's no new supply currently forecast for Australian metro markets from 2027 onwards. Currently, domestic office markets show continuous bifurcation between prime and secondary office assets and certain submarkets remain challenging, which has impacted Centuria's overall office occupancy. However, Centuria leased more than 62,000 square meters of office space and transacted more than $330 million of office assets during the period. Centuria is well-known for its value-add strategies and our most recent example is converting surplus office space into data infrastructure with construction of Australia's first AI Factory supercomputer in Melbourne CBD. The conversion has already provided a 10% valuation uplift to the existing building. Across the Tasman, Centuria New Zealand has recently converted a vacant office building in Auckland to a high-end self-storage facility complete with temperature-controlled wine storage, high-security vault, personal deposit box and an upscale wine [ proper door ] retail offering. Moving to our industrial platform on Slide 15, which also comprises about 30% of Centuria's platform. Assistance sector tailwinds have provided average re-leasing spreads of 50% across Centuria's Australian industrial properties with close to 160,000 square meters leased during the period. This is in part driven by Australia's portfolio of high-quality urban infill industrial assets. The platform provides further potential rental uplift with 24% of industrial lease expiring within the next 2 years. Australia still has one of the tightest industrial markets in comparison to global peers. To help capture this demand, a $1.2 billion industrial development portfolio pipeline has been identified. More than $1 billion of this pipeline comprise opportunities within CIP. However, our New Zealand team is also redeveloping Woolworths' primary South Island distribution center, which will transform the asset into one of the largest industrial facilities in the South Island. During the period, Centuria executed over $200 million of industrial transactions with disposals averaging over 8% above book. With an attractive average size of less than $40 million, our assets are exposed to a wider transaction pool. Centuria's industrial platform provides a high occupancy exceeding 97% and a healthy WALE of 6.6 years. On Slide 16, the details of our 60 asset retail platform, which is focused on large format and daily need centers. Since FY '23, Centuria has captured growing investor appetite for single asset unlisted daily needs and large-format retail assets with more than $250 million of retail funds being established. We've commenced the second half of the financial year with the largest LFR transaction in recent years, the $115 million Logan Super Centre. The equity raising for this transaction has commenced and initial interest is very strong. Over the period, Centuria leased 67,000 square meters across its retail platform, in particular, our LFR assets provide an attractive 15% average re-leasing spread during the year -- half year. Both our Daily Needs and LFR portfolios provide high occupancies of 97% and 99%, respectively, as well as healthy WALE of 4.2 and 3.4 years. Slide 17, Centuria Bass is a clear example of the group's ability to identify and scale new opportunities that are attractive for our investor clients and provide additional revenue streams for CNI security holders. In less than 4 years, Centuria Bass has grown its loan book significantly from $250 million to $2.3 billion and as at half year '25, contributing 16% of CNI's operating EBITDA. The impressive growth of this business is continuing, and we remain on track to deliver an EBIT target 20% above last year's result. In recent years, we have seen very strong demand from our wholesale investors for our real estate credit products, which we expect to continue. That said, as John mentioned earlier, Centuria Bass is positioned to expand its offerings with significant process -- progress being made on a listed investment trust and retail products that can grow our loan book and provide opportunities to a wider range of potential investors and wealth managers. Looking more closely at the real estate credit platform on Slide 18. As a real estate fund manager, Centuria is an early mover into real estate credit back in 2021 and has quickly grown the platform and its loan book across a range of funds and products. We currently have 2 diversified wholesale funds, 44 SPVs and have originated over 160 loans since inception. Centuria Bass' platform is 93% secured by first ranking mortgages. Average LVR 66% and is concentrated towards the domestic property middle market, which has reduced competition. The platform was further bolstered in the period by increasing our institutional capital base with UBS upsizing its commitment to $200 million as part of the Centuria Bass warehouse facility, which is now nearing $300 million. Nonbank real estate lending conditions remain attractive for our real estate credit business as developers continue to search for alternative lending solutions across a real estate market that now exceeds $86 billion and is forecast for strong growth over the coming years. Centuria Bass is well positioned to service this growing market demand. Moving to our health care platform on Slide 19, which also provides a high occupancy exceeding 97% and a long WALE of almost 12 years. More than 40% of our health care platform comprises short stay and day private hospitals, positioning Centuria as one of the largest landlords for these types of facilities in Australia and New Zealand. During the period, we completed Australia's latest private short stay hospital in Kew, Victoria as part of our joint venture with an investment vehicle sponsored by Morgan Stanley Real Estate Investing. Centuria is also committed to another $250 million health care development pipeline, which provides new generation fit-for-purpose health care assets that lend themselves to efficient models of care. Centuria currently manages 67 health care properties that service 116 individual tenants. Of these assets, 90% provide net or triple net lease covenants. On to our ag platform on Slide 20. Through the unlisted $460 million Centuria Agricultural Fund, we've become Australia's biggest large-scale glasshouse landlord. Our predicted cropping investment rationale also extends to our Centuria New Zealand Agricultural Fund. Across all 14 agricultural assets, the platform benefits from 100% net or triple net lease covenants. These assets drive 13 different irrigated crop types using best practice controlled environment farming methods. Centuria's agriculture platform delivers a WALE exceeding 13 years and a 93% occupancy. Turning to Slide 21, growth in alternatives. During the post-COVID period, Centuria took a medium-term view that economic conditions would continue to be subdued. We used this period to further diversify our earnings base into highly scalable alternative sectors. As you know, we have since added agriculture, real estate credit and technology verticals to our platform. As conditions improve, the entry into these sectors is proving extremely valuable from an earnings perspective, each business maturing over time as we integrate and support their activities. Centuria Bass Credit is an excellent example of this strategy. It will contribute approximately $24 million of forecast FY '25 EBITDA in only its third full year of acquisition, a 485% increase over its full year '22 earnings. So when we speak of diversity at Centuria, we're always seeking to identify and grow businesses which we believe can make a meaningful contribution to group earnings. Our alternative sectors now represent 24% or nearly $5 billion of our total AUM. Looking to our unlisted funds on Slide 22. As mentioned, 2/3 of our real estate funds are weighted to the unlisted sector. This slide illustrates the diversification, breadth and range of our unlisted platform by capital sources, fund type and real estate sectors. Our unlisted funds service more than 14,000 investors with a growing percentage from the institutional sector. Significantly, almost half our unlisted funds have no expiry date or expiry review dates beyond 5 years, providing opportunities to deliver through market fund management. Centuria generated $400 million of unlisted capital inflows over the period, and we are experiencing a definite increase in demand as both New Zealand and Australia enter an interest rate reducing environment. Unlisted inflows are highly correlated to term deposit rates. And as we see these decrease investor appetite for our unlisted investments increases significantly. We have experienced this with our latest oversubscribed raise in New Zealand recently, which is ahead of Australia in the rate reduction cycle. Turning to our listed platform on Slide 23. Centuria actively manages Australia's largest listed pure-play industrial and office REITs and has co-investments of 16% and 19% into CIP and COF, respectively. Centuria Industrial REIT continued to accelerate its re-leasing spreads to 50% across 79,000 square meters of leasing and commenced $60 million of development projects in addition to progressing planning on its $1.1 billion future development pipeline. Capital management initiatives saw CIP hedge 85% of its debt, delivering gearing at 33.6%. CIP maintained a 97% occupancy and a 7.3 year WALE across the portfolio of 87 assets worth $3.9 billion. CIP's valuations for the period increased by $47 million. Centuria Office REIT retained strong liquidity with $862 million of debt refinanced and with no debt expiring before FY '28. COF recorded balance sheet gearing of 42.9% and was 98% hedged as at 31 December '24. The Office REIT portfolio comprises 19 high-quality assets with $1.9 billion with a 4.2-year WALE and 92% occupancy. Cost valuations for the period decreased by 1.4% with circa 40% of the portfolio valuation staying the same or increasing. This confirms that office valuations have now begun to stabilize. Thank you, and I'll now hand over to Simon to go through the financial results for the period.

Thank you, Jason, and good morning all. Starting on Slide 25, you'll see our statutory operating earnings, distributable -- distributions for the full year and our reaffirmed FY '25 guidance. Pleased to report that despite the turbulent economic financial conditions we've seen, the group achieved a 3.6% increase in its operating earnings to $51.1 million. The statutory net profit after tax of $14.8 million was achieved despite the continued unfavorable market conditions impacting the fair value of the group's co-investment stakes. The increased operating profitability of the group translated to an operating EPS of $0.062 per security and has underpinned the interim distribution declared of $0.052 per security, which does reflect a 4% increase from the prior period. Our reaffirmed FY '25 operating EPS guidance of $0.12 per security and a distribution guidance of $0.104 per security underscores our continued confidence in the group's diversified operating business model, which now spans across the property value chain and supported by the group's fast emerging technology strategy. Moving to Slide 26, which highlights the key components of our operating earnings. Our Property Funds Management segment achieved an operating EBITDA, excluding performance fees, of $38.2 million. Although this result was marginally lower than prior year, it proved to be robust despite subdued transactional activity and reduced property valuations. The decline in transactional and management fees experienced during the period was substantially offset by the increase in property services and leasing fees, underpinned by more than 236,000 square meters of new lease agreements during the period. It's also pleasing to note the group recognized a further $3.9 million in performance fees during the period despite a slight fall compared to the prior period. This revenue stream will continue to be supported by the group's latent unrecognized performance fees, which at the period end stands at $97.4 million. The co-investment operating segment delivered an EBITDA of $28 million, an increase of $1.7 million compared to the prior period and reflects our continued recycling of capital into higher-yielding products. Moving on to Property and Development segment. This segment contributed $12 million in operating EBITDA for the period, representing an uplift in excess of 60% compared to the prior year. The increase in profitability reflects the continued growth in AUM to $2.3 billion as well as the increase in the group's ownership stake to 80% announced in April '24. The group's revenue and expense mix in this half reflects the 100% consolidation of Centuria Bass for this period compared to the 50% net contribution in the corresponding prior period. The Investment Bond Management segment continues to contribute to the operating profitability of the group, delivering an operating profit of $1.4 million with a slight reduction in profitability reflecting the group's continued investment in enhancing compliance systems and processes in response to regulatory changes. The group's reported corporate overheads have remained consistent with the prior year with a noted increase of $0.8 million. This increase reflects the costs associated with incubating the ResetData business. We continue to anticipate a stand-alone and profitable ResetData and Technology operating segment commencing in FY '26. Moving to the group's finance costs, which increased to $18.4 million for the half, reflecting increased financing costs associated with the acquisition of the Health Care business or the remaining Health Care business, in addition to incremental interest costs associated with the extension of debt maturities across a variety of financing instruments. Finally, the decline in operating tax expense of $4 million for the half reflects the ongoing shift in the relative percentage mix of earnings between the corporate structure and the passing income side of the structure. On Slide 27, the group's operating balance sheet has remained resilient during the half year. The net asset value per security saw a slight decline to $1.75 compared to $1.79 as at 30 June 2024, predominantly reflecting the reduced fair valuation of the group's co-investment stakes. As demonstrated by the group's co-investment earnings for the year, Centuria continues to leverage its strong balance sheet to support the underlying business with over $164 million of cash realized from the sale and recycling of balance sheet assets during the year. The operating gearing ratio of 14.5%, along with the balance sheet look through gearing of 38.5% remains well within the group's tolerances. This reflects our continued focus on capital management whilst utilizing a flexible balance sheet to provide support to the business as needed. It's important to highlight the group has increased its average debt duration from 2.6 years to 2.8 years by the end of this period. And as of the balance sheet, the group had access to over $300 million in cash and undrawn debt facilities available to support its various platforms and upcoming initiatives. Turning to Slide 28. Centuria continues to recycle its sources of debt capital across the platform. Over the course of FY '25, we have successfully added 2 new lenders and refinanced 30% of our unlisted funds so that the fund's debt facilities do not become current with positive pricing and terms across all segments. The group continues to actively manage debt across the platform to ensure optimal financing outcomes demonstrated by the platform topping up its hedging profile as market opportunities present themselves. It's also pleasing the average margin across the portfolio is 160 basis points. Looking ahead, we will continue to take a prudent approach to the early extension of debt maturities and taking tenure where possible. The duration presented here will continue to shorten over time in line with fund maturities as well. This concludes our opening remarks. We'll now open the line and invite your questions.

[Operator Instructions] We have the first question from the line of Lou Pirenc from Jarden.

If I can start with -- I mean, you spent a bit of time talking about ResetData and you're clearly very excited about it. Can you maybe give us an idea of when that starts hitting earnings and what your return expectations are of that investment?

Look, we've said it won't hit FY '25. So it's going to be FY '26. We haven't forecast our earnings from that division as yet. The first AI Factory is currently under construction, should be complete by 30 June, and we're in numerous discussions with potential customers. So some of that is confirmed, then we'll come back to marketing and give updates.

I think I agree with Jason. It's just a little bit too early to be granular. And we're trying to give you as much information as we can. And yes, you're right, Lou, we're very excited. But it's like when we started credit or when we started agriculture. We tend not to wave our hands too quickly and shout at the top of rooftops until we've got something we firmly with and let you know some facts. But we believe it's going to be highly scalable and highly profitable.

Sorry, I was just going to add one other little piece. I think we obviously -- and many of you on this call probably came to our recent announcement around the AI Factory and the AI Marketplace, and we have had a considerable uptick of conversations with many organizations around future sales. So that's a real positive to -- and a step in the right direction from when we acquired it back in August.

Great. And then, Simon, maybe just a few questions on the accounts. I noticed that the operating cash flow was fairly minimal in the half. Any one-offs or timing issues to flag there?

Yes. Look, what's really started to come through is -- and I think you're referring to the statutory cash flow in the -- we do put an operating cash flow segment. So it's still around the $20 million mark of net operating cash flows. My comment to that would be there's a couple of things. There is some timing there. The other piece is a full 6 months of consolidation of Centuria Bass. And because of the speed at which it has been growing, there's an element of revenue that is -- cash flow does come at the back end of those loans as opposed to the expenses of managing that business. So there is an element that we're carrying some -- there's future cash flow on the revenue side still to come in that's affecting that number at the moment.

Yes. That's helpful. And then while we're at debt, I mean, there's clearly in the cash flow statement now a lot of movements with these SPVs, which I imagine is all Centuria Bass related. Can you just help me understand kind of what are these SPVs? Who is behind them? And what is the liability of you, Centuria, particularly on that $1 billion of liabilities?

So the accounting standards are putting us into a position of having to consolidate all our -- effectively all of our loans that we do in our Centuria Bass business. They are all effectively single lend SPVs that are all nonrecourse. And effectively, it's the investor or the lender into that SPV who carries the risk around the capital side of it or it's the borrowing to the market. The outcome is that effectively, we have to consolidate, you get cash coming in and you get cash -- effectively the same amount of cash going out in terms of the revenue and expense being interest income and interest expense to your investors. Now there's a timing. Again, the same principle I just described in relation to our operating cash flows applies to this as well. There are some elements where we pay out cash on a month-to-month basis to investors and where some of those don't pay until the end of those loans. So we'll see that continue to flow through into the statutory results. And hence, why that part of the group, we do separate out and put that in our nonoperating segments throughout the accounts.

Great. It sounds like something we should spend some time on offline. Final question for me. Just where are you at with redemptions in the unlisted vehicles? Where does that level sit at the moment?

Yes. So we only have 3 vehicles that have redemption facilities, which are Centuria Diversified Property Fund, our health care fund and our ag funds. The ag fund is sitting at 0 redemptions, Kew, CDPF at 6% and our Health Care Funds at 14%. So it's remained pretty steady over the last 12 months.

We have the next question from the line of James Druce from CLSA.

Just following on from Lou's question, what sort of divestments are you anticipating for the second half?

Look, going through the unlisted side, obviously, there's always funds coming out. We've got 140 of them. So there's always something being sold. We've got a few smaller health care assets that we've taken to market, always recycling old industrial assets, which are smaller assets usually. We have the last asset in our Australian Technology Park Fund is currently in due diligence. So that should settle by 30 June, which is a positive. That's got about a $23 million performance fee attached to it. So obviously, a big chunk of that would have already been accrued. However, the $23 million of cash would come back to CNI balance sheet at that settlement. So yes, there'll be a mixed bag there of our usual sort of disposal through a normal 6-month period.

At best, we would have made a 200% return on that fund to capital return...

Yes. Yes. I'm just trying to get a feel for the net sort of divestments for the second half or just in terms of the FUM movements that you'd expect in a broad sense.

We probably have to look at activity, too, Jason. I think you've got an uptick with Logan, the scale on the acquisition side.

Yes. Yes. On the acquisition side, we talked about Logan that we just started that equity raise going very well. We've got equity raise over $53 million. $70 million raise doesn't open until 10th of March. On that same theme in New Zealand, we had a raise for a project called Shands Road, which will be Woolworths' largest distribution center in the South Island, which is an extension. It was a $26 million raise. We've closed that 5 weeks early. The team thinks we go to raise over $50 million for it. So we're really seeing the market sort of turn over there and investor demand turn back on, which is great. Obviously, the interest rate cuts have gone a lot further in Australia. But yes, investors are definitely looking back for that unlisted product to get that yield differential. So that's really nice to see over there. New Zealand has been a tough market for the last 2 years. But it's definitely one of our most profitable areas when we can distribute unlisted product over there. So it really looks like that market has turned.

I saw a draft letter today from the CEO of New Zealand to the investors apologizing for closing down 2/4 or 3/4 of the road show and then not being able to issue equity and the investment to them, which just reminded me of the last 30 years. But 27 of those, that's the situation we've been in. The yield return -- term deposit relative return has been so favorable that we're able to raise as much money as we want. I think that's going to turn extremely quickly. And it's turning right now because we're at the bleeding edge of that in coal phase.

Okay. So net-net, you're expecting real estate FUM to be growing when you offset the acquisitions from the divestments?

Yes, depending on what happens for the next 3 or 4 months, but -- and what sells. But yes, look, I think it should be reasonably balanced. And hopefully, we have growth.

Okay. And maybe just for the second half, I mean, you're sort of printing ahead of guidance for the first half. So just curious on the drag. Obviously, real estate FUM dropped a little bit, but is there anything you'd be calling out there?

I don't think so. I think it's similar to last year, a little bit of timing between the halves.

That's clear. And just one question on Page 18 of the accounts. It's in the segment information. You've got tech sales of $1.6 million coming through the corporate line. Just wondering what that is.

Yes. So that's really the ResetData sales that we do have in the business coming through. We've put ResetData in the corporate segment at the moment. As it gets larger, we'll move that out of corporate, but that's where it sits at the moment, James.

And the cost of sales of I think it's 1.4, is that a fair representation of the business?

Well, it's about 0.8 net of costs that we're carrying.

I think wider question, no, it's not. That business going forward, that's a very, very minor part of ResetData's business, just the on sale of hardware. That would be an almost inconsequential part of the business going forward. So that's not a fair representation. That's why we're not giving those numbers now because we need to build those numbers up. It's the sale of the compute capacity and where the huge dollars are. Is that a helpful answer, James?

Yes, that's helpful.

We have the next question from the line of Simon Chan from Morgan Stanley.

I noticed property -- unlisted property AUM dropped by about $1 billion in the first half, which is pretty big. And it seems like the bulk of it was due to divestments. I was wondering if you could just talk me through what drove that pile of divestments? Like was it selling to meet redemption, loss of mandates, et cetera? Yes.

So I'll just talk. It's Jason. Look, $400 million of it was Matrix, which we talked about last period, which was the retail mandate. We sold $100 million office tower -- sorry, office building in that ATP Fund, which is the second asset that we sold, which is the Biomed Building. We sold Graham Street in Auckland, which is a $60 million building, a couple in Melbourne. We saw $25 million health care. So yes, it was sort of a mixed bag across it all.

Jason, were they -- I mean, outside of matrix and I guess ATP is the end of life of the fund. Were the others just pruning the portfolio? Were they just a cessation of the single asset funds? Like how should I think about that?

Yes, a lot of -- yes, a lot of it was just end of funds and things like that. It was -- it's pretty spread across all the sectors. But the big one was nearly half of it was retail, which was matrix basically. And then obviously, a couple of decent-sized office assets. So Graham Street and -- which was in the divestments, that was actually in the listed REIT over in New Zealand. However, the $100 million ATP building was obviously the unlisted.

Great. And in your -- sorry, John, did I cut you off?

I was just going to say, I mean, I think that's -- it's a normal course of business for unlisted securitization. The fact is that FY '25 first half has been very hard. You look at most accounts and most presentation from similar managers, they're divesting. And we're not divesting at a much higher rate. It's about the normal rate. The problem is the acquisitions, and that's the thing that's really turned the corner. And pretty well around the time we thought it was. You might recall we were -- I was accused of being quite negative at the start of FY '25. I'm not always right, but I think I've been -- I think we -- the team has been pretty accurate. And we're just seeing that inflection really coming home right now. I even see Robert Harley must have stole on my script notes this morning. And it will happen far quicker than you think, Simon.

And so across all those sales, and there's quite a few them there, there was about a premium to book of about 2.5%. So that includes all the office assets, but everything across the different sectors.

Okay. Cool. And in the slide deck and also, I think in John's presentation, you guys made reference to potentially looking at launching a couple of specific IPOs REITs. Can you clarify like what subsectors you may be looking at? Is it basically recycling some unlisted funds into the listed market? Or is it going to involve new assets coming on to the platform? Any color would be great.

Yes. Look, it's probably a bit early to go into exactly the sectors. But yes, it's a mix of both. So it's new assets and some existing as well for 2 new potential vehicles, and we'd like to execute them both this calendar year.

If I could just add, it's John, to Jason's comment, you're absolutely right. Probably we could have brought some of those -- one of those launches forward a little bit. But the problem is the mixture of assets internal and particularly external, we didn't think we could buy good enough value. So for us, it's great to have an IPO and make lots of fees, good for the head stock. But if it's not good for the downstream investor, actually the unitholder in the REIT, we won't do it. We have to find good real estate value. So those core real estate value propositions are sacrosanct to us.

Great. And my last one, guys, it looks like you've mopped up Heathley. Can you remind me of the history there and the stake you bought and all that stuff?

Look, I'll, Simon, jump in, but we did the deal with Heathley circa 5 years ago or just nearly 6 years ago. The deal was there, we bought circa 60% upfront with a 5-year put and call. So that came up in the period, and we mopped up the rest of it. So now that we own at 100%...

We have the next question from the line of Tom Bodor from UBS.

I'd just be interested in touching on Bass a bit more. Just be interested in whether Centuria Capital typically participates in underwrites or guarantees any of the loans in the Bass business?

Guarantees the loan.

So we do support from time to time, Tom, where we are going through our Centuria channels, and we underwrite the loan itself.

Yes. So let's say there's a $30 million loan. We're going to put it out through our single asset -- single loan sort of fund. We might take it on balance sheet for a few weeks while we're raising the money. That's about the extent of it.

And do you receive fees for that or -- for the risk you take? Or is it just part of the growth there?

Yes, we do. We receive fees. We had an agreement with the other shareholders at the start that we use balance sheet to help with its growth that we do get paid fees on.

Okay. Great. And then you talked on, I think, one of the early slides about a couple of listed REITs, which you're in advanced stages on subject to market conditions. What are the sectors that are being targeted there?

Yes. Look, as I just said before, it's probably a bit early to go into that. We're progressing them. They're well progressed. And we're looking to execute on both of them this calendar year. So -- but we're not quite ready to go into too much more detail at this stage.

Okay. Great. And then just in terms of the commentary around markets troughing and being at an inflection point, what is the capacity across the platform to really deploy into that in terms of across all your funds capacity and obviously, the group. I mean, I know you've put your cash and undrawn debt, but like how much can you really play into that recovery?

Yes. Look, it's different across the group, right? On the unlisted side, we -- as I mentioned earlier, we've definitely got a tick up in demand from our investors, which is nice to see over the last -- after the last couple of years. So I think both New Zealand and Australia will be pumping more product through those distribution channels. We're seeing the wealth managers, the financial planners also come back into the market. So it's not just the direct investors. So once they activate, we can raise really good flows through them. So I think you'll see a lot of it in the unlisted side. On the institutional side, we've got a lot of activity there at the moment across a range of sectors where we're talking to groups about possible JVs and mandates as well. Obviously listed is a little harder where they're both trading. CIP sort of edging up, but COF is a bit harder. But I think CIP put out some pretty good results on Tuesday. We're seeing really good re-leasing spreads and the [ values are turning ] going back up. So look, I think we'll be going across the platform with the different capital pools and using the flows where we can to buy more assets if we can see value.

The other thing I'd just add to that from a balance sheet point of view, we've got probably about $40 million to $50 million of cash that's been in assets that have been stuck on our balance sheet for a period of time that we know are coming back in the next 3 to 4 months as well. So -- so that's added cash flows coming back into the business.

I think historically, if I think over the last 20 years, I can't recall an instance where, for example, for an unlisted trust where we've run out of capital for deposits or we always had enough money. I suppose you've got to match it with the flows, the demand too, Tom.

I appreciate that. I guess what I'm asking though, is just sitting here today, it sounds like your capacity will be subject to raising equity, which should be possible, but you need to raise the equity really to come back in a meaningful way.

That's always the case, isn't it? That's hardly something new. It's just that what we're seeing now is that, that relative fixed interest real estate return delta has just clicked over to be really favorable, and it's going to get more favorable every time there's a rate reduction. And this is not -- that old legacy business of ours is not a complicated business, and you're going to see huge demand coming from these people. You always got to think about the hybrids going off the market. So there will be a clamor for yield like you've never seen.

And look, we've always -- we've got some dry powder in some of the mandates as well. But yes, a lot of it will be new capital, but some of it is pretty well progressed already.

Okay. Just a very quick last one for me. Were there any development earnings in the period? I think you've rolled that into the property funds management.

Yes, immaterial. There's a few things finished. We've got -- we commenced 2 new industrial developments in South Australia, which is announced. A lot of work is being done around the planning for the $1.1 billion industrial pipeline. So that's where I think you're going to start seeing those development earnings flow through over the next sort of 12 to 24 months. But we've had a lot of progress on planning across a lot of those sites, which is good to see.

We have the next question from the line of Richard Jones from JPMorgan.

Just sorry, just to follow on a few of the earlier questions. Just in terms of the 2 REITs you're planning, is that in addition to Centuria Bass listed credit fund, just to clarify?

Yes.

Yes.

Okay. Is it able to -- are you able to step through what the cost of the investment is for the original AI supercomputer you're doing at the moment in Melbourne?

Look, it's broken up into a couple of ways, right? The actual cost to construct the facility, which is -- we've talked through before, that actually comes from the fund from COF as basically the capital incentive to build the facility. And then the second part of it is obviously the Reset operation and the outfitting the facility with chips. So it's broken up into 2 parts.

Okay. And ballpark number?

Look, we don't really want to go into it yet. I think we'll be a lot better progressed by probably next period once it's complete and we've got some customers.

We have the next question from the line of Ben Brayshaw from Barrenjoey.

I was wondering if you could just discuss the opportunity that you might see within the data center space for real estate equity AUM, just given your early moves in ResetData, whether that's an asset class that you would consider relevant for scaling up the funds business.

Well, probably if I make a few comments first. Ben, it's John. Look, it comes in a number of streams. I think the obvious stream at the start was our initial interest was just an immersion cooling because the latest chips, H100 and H200 chips can't be cooled in air. And so that started off rolling. And then we could see in our portfolio, there's between 7 and 10 Centuria properties of interest where we could see we could achieve over market rents just by simply employing the tabs and getting colocation fees. So that's a direct real estate positive outcome. But as we've got further into it, we could see that no one in Australia. In fact, NVIDIA could see that no one in Australia was really about to service an Australian sovereign public AI infancy marketplace, and they were very keen for us to sort of convert the first factory, AI Factory, what's called F1 into processing power and compute capacity. And what that's allowed us to do is give us access to NVIDIA's client base and we have also Dell, who our partner as well. They've got a very active sales force of over 200 people in the country who are also out there looking for customers for compute activity. So I think Australia compared to globally, and Simon will probably -- will Jason give you more details, but globally, Australia is really behind the eight ball because at the moment, there are only large-scale companies or government that has access to the compute capacity to really put AI inferencing to work. And the fantastic thing about the Reset solution is it's got this marketplace, which I really like a series of [ apps ] is the closest way to think about it, where smaller companies can access inferencing solutions. And I think this thing is going to be weighed where we catch up the rest of the world. Simon, I'm not sure how well I described it.

I'll add one thing. Look, as John mentioned, we've sort of got close to 10 assets that we're looking at as a pipeline. They're all existing assets. So it's using existing anything from office or industrial and turning them into AI Factories. The smaller facilities in terms of megawatts, which helps with pallet needs. These are all sort of 1- to 5-megawatt facilities. So you don't have these huge 50 to 100-plus megawatt requirements to the grid. So we definitely have more flexibility. We also own sort of $500 million worth of data centers within CIP with Telstra and Malaga already. So yes, so we're working through it all, and we think there's going to be some pretty good real estate opportunities to go with the Reset platform.

Yes. Terrific. And just referencing Simon's comments earlier, I just wanted to clarify the performance fee that may be payable upon the settlement of the ATP property by 30 June, has that been provided for in guidance at this stage?

The earnings -- the revenue side has been in the numbers for some time across that platform as we sold 3 assets. So...

Cash flow, cash will be coming back.

The majority of it is accrued, Ben, in the P&L.

We have the next question from the line of Edward Day from MA Financial.

Simon, in your earlier remarks, you made a comment around your co-investment income and redeploying capital into higher-yielding investments. Can you just give some color around what those investments are? Are they co-investments in credit?

That's the main one where they have been at higher returns than the equity investments, correct?

And are they just sort of -- is that a facilitation investment? Or are they for the duration of the fund?

Short-term facilitation underwrite support for a couple of weeks here and there, but there's been a few of them. So we get good returns off that.

So fair to say you'd expect to see that consistently moving forward?

Yes, I don't see why not.

Okay. And then just on your unlisted fund business, obviously, you've done Logan this half. Maybe just some color around other potential opportunities you were looking at.

Yes. Look, looking across the board, retail is definitely something that the investors like. We've sort of done over the last sort of 18 months, sort of the Halls Head, Manning Mall, now Logan. So in Australia, I think you'll see more retail. Industrials would have to be more sort of total return funds because they obviously got the low yields of the sort of stuff that we were trying to buy that's under rented. But we do have a good demand for industrial. So we're about to fill our opportunistic fund. So there could be possibly another opportunistic fund raise. And in New Zealand, we're looking across a number of different sector opportunities over there as that market has picked up as well. So I think it's going to be a mixed bag.

We have the next question from the line of Callum Bramah from Macquarie.

I just wanted to go back just to understand in the guidance and what is in the second half. Is it -- is there any requirement for recovery in acquisitions? Or -- and are you able to talk about maybe what the expectation is for performance fees into the second half?

On the performance fees question, look, I think it's going to be fairly consistent, flat. I don't see it going up into that number. I'm not sure I quite understood the first half of your question, though, Callum.

I guess I was just looking at it and thinking it's down 6% half-on-half. And I was just trying to understand why.

I don't think there's anything major. It's really timing, and it's just going to depend a bit on what acquisitions flow through over the next few months.

I mean, obviously, in the second half that January is a pretty slow month relative to the first 6 months, that doesn't really have a slow month because everyone is on holiday. So I really just think that there is a bit of timing in that conversation.

Okay. So it's sort of more like historic seasonality?

Correct.

Okay. And I just wondered if you could provide a little bit -- I think you mentioned there's unrealized performance fees of a touch over $97 million. Can you just give us a little bit of an idea of timing of when they'd be realized?

Most of them like coming out of that Primewest portfolio. And so some of those happen really in 2029.

A big chunk of Primewest funds were extended by 10 years in 2019 when they listed. So not all their funds, but a decent chunk of their funds expire in 2029. So look, I think you'll get realizations over the next 3 or 4 years. Some of our funds come up earlier. But yes, there is a chunk at the back end in '29.

Okay. And just to understand, again, going back to this, the AREIT opportunity, it sounds as though a portion of the portfolio of assets is potentially some version of a liquidity event for existing investors in those assets. Do you end up running having or needing to run parallel processes? So in effect, if -- to your point, if the market is not conducive, do you -- are you able to recap them in an unlisted or you end up selling the assets to provide that liquidity back to unitholders? Or you simply defer and retain the assets on those funds?

Look, we've got good flexibility under the constitutions and good relationships with the investors and the wealth managers that put the clients in. Usually, if we're going down a strategy, we bring the investors along for the ride. They understand the risks and potential timing changes. So for those assets that we currently own in different structures, look, there's always that market risk for IPOs. But we keep the investors up to date and timing isn't -- we've always got flexibility around timing.

And so typically, would they simply stay in and convert from being an unlisted unitholder into a listed unitholder?

Look -- yes, that's definitely an option.

Typically, we give them the choice, and we don't try and hold people investments that don't suit them. And most of -- to the extent that we might launch a vehicle with some presently held assets within portfolios, it's the driving force is generally not that they are close to expiry or termination. The driving force would be what REIT sector we think we'd like to approach where we could produce a REIT, where we could launch it not like a zombie REIT, but a REIT that's really popular, large sufficient scale to list well and increase unit value. That's probably where we start from, not whether something is terminating.

And my final one, and maybe there's a way to find this out, so apologies if I've missed it. But just looking at that unlisted fund, portfolio. And I suppose I think it's $13.7 billion, I think. I was just trying to understand how the performance is tracking across a lot of those vehicles. So I don't know how you think about it, but what proportion are currently beating their original target return by number or value?

Look, look, it's 140 funds. So it's a bit different. Look, I think on the negative side, I think we have one $10 million fund that's not distributing. So the rest are all distributing across the board. It's -- a lot of them depends on the hedged and what's happened with rates, but they're performing well. It's hard to find the right benchmarks. What we use is the MSCI PFA unlisted index. They put out a quarterly report. I think we've had 6 to 7 of the top 10 funds for basically the last 6 years, so last 24 quarters. So yes, look, I think we're definitely performing pretty well compared to our peers. And look, our investors on the whole are very happy.

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

Just on behalf of Jason and myself, Tim Mitchell and Simon Holt, thank you very much for showing interest today. There is an interesting -- it's interesting time in the market as we're seeing this uptick and look forward to speaking further with all of you.