Centuria Capital Group (CNI) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Centuria Capital Group FY '26 Results. [Operator Instructions] I would now like to hand the conference over to Mr. John McBain, Centuria Capital Group Joint CEO. Please go ahead.

Thank you. Good morning, everyone, and thanks for joining us. First, I've got a pretty bad head cold, so I'll try and speak up, but I might start spluttering. So I'm John McBain, Joint CEO of Centuria Capital. And with me today is my fellow joint Chief Executive, Jason Huljich; the Chief Financial Officer, Simon Holt; also Tim Mitchell and Peter Ho from Investor Relations and Strategy. Before we begin, I'd like to acknowledge another ASX announcement released this morning in relation to our Chief Executive transition. Today, we announced the appointment of Jason Huljich as Group Chief Executive Officer effective the 27th of November this year at the close of our AGM. The move to a single CEO structure is consistent with the Board's long-term strategy to ensure a seamless leadership transition. As at that date, I have decided to step down from my executive role and transition to nonexecutive duties, remaining as a Nonexecutive Director across a number of group boards, including Centuria Capital Limited, Centuria Life Limited, Centuria Bass Credit and Asset Plus Limited in New Zealand. First, I want to warmly congratulate Jason on his appointment. Jason is an extremely talented executive who has spent more than 30 years helping build the Centuria platform and brings a deep knowledge of every part of our business, strong relationships across the market and a clear vision for where we take Centuria next. It's been a great privilege founding and building Centuria alongside Jason from a small team with a handful of investors to the business it is today. So I'm proud of what we've created together and very confident of the ability of Jason and the leadership team to take it forward. Centuria is like a second family to me, but I feel that the time is right for me to make this decision, and I'm genuinely looking forward to staying involved, supporting Jason and the team in a nonexecutive capacity as well as spending more time on my private interests and especially my family. With that, today, we'll cover the group's FY '26 results, progress across our real estate and credit businesses, the execution pathway for ResetData, our financial position and the outlook for FY '27. I'll begin with the group results and strategic context. Jason will then cover operating performance across real estate credit and AI infrastructure. Simon will take you through the financial results and balance sheet before handing back to Jason to close on strategy and outlook. Starting on Slide 4. Before turning to the results, I want to spend a minute on who Centuria is today, particularly for investors who have joined the register more recently following the June capital raise. We manage more than $22 billion of assets across real estate equity, real estate credit and AI infrastructure. Our recurring management fees provide a stable and scalable fee base. And as an external manager, it is this scalability, which provides growth potential. Centuria is a mature founder-led business with a strong 25-year track record, servicing a range of asset classes and AI infrastructure opportunities. We work with more than 15,000 unlisted investors, over 1,200 financial advisers, 10 institutional capital partners and 25 banking relationships. What differentiates Centuria is the combination of capital, origination, asset management and operating capability within one platform. Our real estate and credit businesses generate recurring earnings today and provide the relationships, capability and cash flow base to pursue new opportunities. Increasingly, that opportunity includes AI infrastructure through ResetData. Our key message is simple. We have an established earnings base and a substantially stronger balance sheet, which will support significant opportunities across the business. '26 was a strong year, as outlined on Slide 5. Operating profit after tax increased to $113.8 million. Operating earnings were rebased up to $0.136 per security as we upgraded during the year, 11.5% above FY '25 and distributions were maintained at $0.104 per security. Group assets under management increased to a record $22.2 billion. We recorded more than $1.2 billion of real estate acquisitions, 20% above the $1 billion target we set ourselves at the beginning of FY '26. At the same time, we materially strengthened the balance sheet with operating gearing reducing from 12.3% to 5.1%, supported by asset recycling and the $300 million equity raise completed in June. For FY '27, we are guiding to operating profit after tax of approximately $130 million, representing a 14% year-on-year growth. Operating earnings of $0.13 per security and distributions of $0.104. The June equity raise increased securities on issue by approximately 20.6%, which will moderate the near-term per security outcome as capital is deployed. At an EBIT level, earnings are expected to track broadly in line with that increase in the share count with the difference to operating profit growth primarily reflecting higher interest costs and a slightly higher effective tax rate. FY '27 is a year of deployment and growth with benefits expected to build further through FY '28 and FY '29 and beginning to appear in the last quarter of FY '27. Slide 6 shows the environment remains selective rather than capital constrained. Interest rates remain relatively high, confidence is mixed and investors are working harder to distinguish between managers, sectors and individual opportunity. Real estate returns remain attractive. Superannuation and private wealth pools continue to grow. Global institutions remain well capitalized and approximately $30 billion of bank hybrids are expected to mature over the coming years. We believe the proposed budget changes will encourage a greater focus on commercial real estate investment with its higher returns relative to traditional residential investment. This shift away from higher tax capital gains to an income focus will be most evidenced in Centuria's traditional high net worth investor base. In markets like these, capital tends to favor managers that can originate opportunities, underwrite risk and match assets with the appropriate capital source. We believe that plays directly to Centuria's strengths. AI infrastructure presents a different market dynamic as we detail here on Slide 7. Demand is scaling quickly, but demand itself is not the central constraint. The constraints of physical delivery, bringing together power, data center capacity, GPUs, funding and customers within the required time frame. In our view, the opportunity lies with those that can actually deliver. That is where we believe Centuria and ResetData are well positioned. ResetData is 1 of 3 NVIDIA cloud partners in Australia. This is an important position that reflects the capability the team has built and the progress already being made. FY '27 is going to be an exciting year for ResetData. Slide 8 is really about one thing, execution. We raised capital in June because we could see opportunities to grow the business. Since then, we have been doing what we said we would do. Across the real estate platform, we are sourcing larger acquisitions, building funds for private and institutional investors and targeting higher earnings in core property funds management and property investment. Across ResetData, GPUs have been ordered. Capacity has been secured. Funding arrangements are in place. Customer MOUs have been signed and multiple customer discussions continue to progress. The Macquarie bridge financing facility has funding flexibility, while our near-term capacity is now approximately 10 megawatts. ResetData will remain in an investment phase for FY '27. This is the year we convert commitments into operating assets, progress customer onboarding and prepare the platform for future earnings. While FY '27 operating profit tax is expected to increase by 14%, operating EBIT is expected to increase by around 20%, reflecting the underlying momentum within the business. The focus now is simply on delivery. Thank you. I'll hand -- now hand over to Jason to take you through progress across the divisions.

Thanks, John, and good morning, everyone. FY '26 was a strong year across our property platform, as we've highlighted on Slide 10. Property Funds Management AUM increased to $18.6 billion. Total real estate transaction activity was approximately $1.9 billion, including acquisitions and divestments, while gross unlisted capital inflows were $425 million. The underlying portfolio remains diversified across 102 funds, close to 400 properties with an average occupancy of 95% and a weighted average lease expiry of 5.5 years. This scale matters because it supports recurring fee income, operating leverage and a broad origination network across different sectors and capital sources. Turning to Slide 11. FY '26 demonstrated our ability to secure larger high-quality opportunities. We established Australia's largest single asset unlisted industrial fund through the acquisition of the Port Adelaide Distribution Center, secured Australia's largest hydroponic glasshouse for agricultural platform and launched 680 George Street, our largest single asset unlisted fund today, which settled after year-end. We also acquired the Arrow platform management rights, adding $444 million of unlisted AUM and increasing our agriculture platform to $1.3 billion of assets under management. Across the listed portfolios, active management was equally important. CIP completed near record leasing, divested assets and average 17% premium to book value and identified more than 250 megawatts of potential data center capacity. COF completed substantial leasing, sold 9 Help Street above book value and refinanced $1 billion of debt at improved margins and longer tenure. The common thread is best-in-class origination and active management. Turning to Slide 12. The recent purchase of 680 George Street is a good example of our model in practice. We acquired a 50% interest in the World Square Commercial Precinct, a landmark Sydney CBD asset at a 7.5% capitalization rate and approximately 60% below replacement cost. Before settlement, leasing and valuation progress has already improved the fund metrics significantly. Occupancy increased from 88% to 93%. The weighted average lease expiry improved to 4 years and an independent valuation delivered a valuation uplift. from $454 million to $493 million. Encouragingly, a number of leading and global institutional investors chose to invest alongside our wholesale and retail investor base, further validating the strength of the opportunity. Moving to real estate credit on Slide 13. Centuria Bass' credit assets under management increased to $2.6 billion during the period, supported by around $200 million of gross unlisted capital inflows. The diversified loan book comprises 38% construction, 37% bridge, 23% residual stock and 2% subdivision and civil facilities. Since inception, the platform has originated 217 loans and exited 136. Principal impairments remained below 1%. The portfolio is 94% first mortgage exposure, 93% residential exposure and with an average loan-to-value ratio of 67%. The opportunity remains significant, but growth will continue to be driven by underwriting discipline rather than market share target. Slide 14 shows the operating model behind those credit fund outcomes. The 2 credit funds have generated annualized returns since inception of 9.03% and 9.48%, respectively, while maintaining diversified loan books and predominantly first mortgage security. Importantly, those returns have been achieved through different interest rate and property market cycles, reflecting the benefit of disciplined underwriting and active portfolio management. Every loan requires investment committee approval with larger exposures escalated to the Centuria Bass Credit Board. We take a highly active management approach, closely monitoring and managing sales, cash flow construction milestones, liquidity and recovery pathways to ensure risks are identified early and outcomes are optimized. That active management is a key reason the funds have delivered their historical returns. Slide 15 provides a closer look at our 2 CBC credit funds. Both funds are designed to provide investors with diversified exposure to real estate credit. Importantly, no single position dominates either portfolio with most of the capital invested outside the 10 largest exposures. Slide 16 provides additional detail on Centuria Bass Credit's Bathla exposure. This has become particularly relevant given the recent media attention and the recent announcement that the Bathla Group has entered a voluntary administration. Centuria Bass Credit has $278 million secured across 6 residential projects in New South Wales and Victoria. Two of the facilities relate to construction projects that are close to completion. The remaining facilities comprise residual stock and land loan exposures. Importantly, security is held across all 6 projects and benefits from a cross-collateralized structure. In our view, that provides access to a broader range of repayment and recovery pathways that would typically be available on a stand-alone project basis, including project settlements, project completion, refinancing and asset realization. Our focus remains on progressing these pathways and maximizing outcomes across the portfolio. Turning to Slide 18. This illustrates that ResetData has been building high-density AI infrastructure capabilities since 2021. In 2024, the team partnered with Centuria bringing together ResetData's AI infrastructure capability with Centuria's property development and capital expertise. In early 2026, AI Factory 1 became operational in the Centuria-owned property using NVIDIA H200 infrastructure. The ResetData team now has more than 30 specialists across engineering deployment, operations and customer enablement together with NVIDIA aligned architecture and repeatable deployment models. The capability and partnerships are now in place. Slide 19 shows what's been achieved in the 8 weeks since the group's equity raise in June. At AI Factory 1, the final 512 H200 GPUs have been ordered to complete the build-out of the facility. Dell Financial Services funding is committed and customer discussions are progressing. At AI Factory 3, 64 B300 GPUs have been ordered, vendor funding is committed and the customer MOU have been signed. At AI Factory 6, we secured 7 megawatts of CDC facility, ordered the initial 1,152 B300 GPUs and established Macquarie Bridge GPU financing and continue to progress customer discussions. In parallel, we are progressing Centuria capacity, including a 10-megawatt fast track pathway, potential further 20 megawatts and 72 megawatts of secured generation units. The focus is on matching capacity deployment with customer demand and funding. The deployment pathway is structured in 3 layers as outlined on Slide 20. The near-term base is approximately 10 megawatts across AI Factory 1, 3 and 6 targeted through the second half of FY '27 and matched to initial customer demand and deployment funding. Beyond that, we have the ability to scale above 30 megawatts for additional third-party and Centuria capacity. The longer-term opportunity is more than 220 megawatts through data center and generation assets. Each stage remains guided by power planning customers' funding and returns. This approach allows us to scale capacity in line with demand and available capital. Turning to Slide 21. This slide shows Centuria's data center real estate footprint. Centuria owns operating data centers and sites with near-term development potential across Victoria, Queensland and Western Australia. Across our footprint, we have identified more than 250 megawatts of potential capacity. This is optionality, not a commitment to develop every site. Each opportunity remains subject to power, planning customer demand and funding and return hurdles. A number of these opportunities are already being progressed as we continue to work alongside capital and strategic partners. I'll now hand over to Simon to take you through the financial results.

Thanks, Jason, and good morning, everyone. Turning to Slide 23. The result reflects growth across the core platform with operating profit after tax increasing 11.5% to $113.8 million. Operating EBITDA increased to $182.5 million and operating EBIT increased to $175.2 million. Property Funds Management was the strongest contributor to the growth, increasing to $74.8 million, supported by record assets under management, transaction activity and a higher contribution from performance fees. Property investment earnings increased to $92.2 million and the property and development finance earnings were $24.3 million. Loan origination activity remained strong during the year, while earnings reflected lower residual and penalty fees compared with FY '25. ResetData remained in scale-up mode. The Sovereign AI segment recorded an operating result of negative $10.9 million, while the net loss attributable to Centuria was $5.9 million. This reflects investment in people, infrastructure and capacity ahead of expected earnings contribution. Net group finance costs were reduced to $24.5 million, reflecting lower cost funding sources and a stronger balance sheet. And statutory profit was $54 million compared to $82.6 million in FY '25, primarily reflecting movements in the share prices of the group's listed REITs and other nonoperating items. The reconciliation to operating profit is provided in the appendices of this presentation. Looking more specifically at Property Funds Management on Slide 24. Revenue increased to $186.7 million and operating EBIT increased to $72.6 million. The EBITDA margin increased from 35% to 40%, highlighting the operating leverage available as the platform scales. Management fees remained the largest and most recurring revenue stream at $145.1 million, while performance fees increased to $20 million from $7 million. The group also has approximately $69 million of latent underlying performance fees at current valuations. While unrecognized and subject to market movements, this highlights embedded optionality within the platform. Performance fees can enhance earnings from time to time, but recurring management fees remain the foundation of this business. Turning to the group's balance sheet on Slide 25. Operating gearing declined from 12.3% to 5.1% during the year. We realized $197 million from asset recycling initiatives and completed the $300 million equity raise in June, significantly enhancing our ability to seed opportunities, support fund establishment and execute on the growth opportunities identified across the platform. Net asset value was $1.76 per security compared to $1.79 a year ago, and the weighted average debt duration increased to 3.1 years, and there are no group debt maturities until June 2028. The balance sheet is now positioned to do what we needed to do, warehouse and seed opportunities, support disciplined investment and preserve flexibility as capital is deployed. Moving to our debt capital management on Slide 26. Across the broader real estate platform, Centuria manages $8.6 billion of lending facilities through 25 lenders. Average margins improved to approximately 1.44% in FY '26 and weighted average debt duration increased to 2.3 years with the average hedge profile increased to 56%. This lender diversity and active refinancing capability supports the funds we manage and reduces reliance on any single source of capital. That now concludes the financial section. I'll now hand you back to Jason to relay our strategy and outlook.

Thank you, Simon. The message for FY '27 is execution. We entered the year with a significantly stronger balance sheet, record assets under management and identified growth opportunities across both our real estate platform and AI infrastructure business. Our priority now is disciplined deployment of capital and delivery against the opportunities already in front of us. Across real estate, we are focused on growing earnings through large acquisitions, new fund opportunities and active asset management. Across Rese Data, FY '27 remains a year of deployment, customer progression and capacity build-out as we execute on the foundations established over the recent years. Importantly, the underlying momentum of the business remains strong. Operating EBIT is expected to increase by around 20% in FY '27, while operating profit after tax is expected to increase by approximately 14% to $130 million. We are also guiding to operating earnings of $0.13 per security and distributions of $0.104 per security. We believe the actions we are taking today position the business well beyond FY '27. As capital is deployed, acquisitions are integrated and growth initiatives mature, we expect the benefits of today's investment to increasingly emerge through FY '28 and FY '29. '27 is about execution, FY '28 and '29 are about realizing the benefits of the capital we are deploying and the investments we are making today. Centuria has a strong foundation and experienced team and significant opportunities ahead. I remain very confident in the future of the business. Before we conclude, I'd like to acknowledge John. We've worked together for 30 years, and I've spent my entire professional career working alongside him, as we built Centuria together. From a small team with a handful of investors, Centuria has grown into a diversified funds management platform with more than $22 billion of assets under management and an Australasian presence throughout multiple business lines. On behalf of everyone at Centuria, I want to thank John for his partnership, leadership, friendship and unwavering commitment to the business and its people. What we put together is something I'm incredibly proud of. I'm honored by the Board's confidence and excited for what lies ahead. Centuria is in a strong position, and I'm looking forward to leading the team as we continue to build on the platform John and I have grown together. I'm also very pleased that John and I will continue working together as he moves into his new role on our Board. His experience, judgment and support remain a valuable asset to Centuria. Importantly, this transition is built on continuity. The strategy remains the same. The opportunities remain the same and the leadership team that has helped build the business remains firmly in place. Thank you. That concludes the formal presentation. We will now hand back to the operator and take questions.

[Operator Instructions] Your first question comes from Simon Chan from Morgan Stanley.

I was hoping you could walk me through how you get to your $130 million NPAT guidance for FY '27. I'm just a little bit confused, guys, right? Like you did $114 million in FY '26. I get that. That was a good result. You raised $300 million a month or so ago, right? So if I just assume you invested $300 million at 5%, which is very conservative, right, because George Street is doing way higher than that. $300 million at 5% would give you $15 million. $15 million plus $114 million equals $130 million anyway. I guess my question is, what's happening to the base business? Because I could get to $130 million just by paying down debt or putting money into George Street. But what's happening to the property business? What's happening to fundraising? What's happening to ResetData contribution like in 2027?

I think that's a lot of questions in that, Simon. More than two, I would hazard a guess. I think FY '27, obviously, as we work through it, there's some key impacts happening at NPAT versus EBIT, particularly around tax and the allocation of tax as a result of the equity raise. There's also the interest cost, in particular, coming through that's playing, I would say, a position of higher interest rates in our forecasting as opposed to maybe where the market or Street might be. They are probably the 2 main line items that's called below EBIT. In terms of the core, there's a lot of different things that are playing out here. Obviously, we still at a ResetData level are expecting to make a smaller loss, but it's still a loss. And -- in Centuria Bass, given recent events, we have pared back that a little bit in the first half and expect that to come back to a bit more normal in the second half of this financial year. And in relation to the core business, I think as we said at the capital raise, we need to bed down 680 George Street in particular, and then look to go again. But again, that will push earnings back into the second half, in particular. Jason, you may have any a few more things that you'd like to add?

Yes. Look, I agree with all of that. Look, the core business is still very strong. As we said, 680 is the largest transaction we've done in history. Investors response has been very positive, both on the institutional side and the high net worth side. We've still got some work to do to mop up the remaining equity we have, but we've got a number of institutional groups in due diligence at the moment, and we expect that to be taken up over the shorter term.

Simon, you mentioned that tax allocation of tax and interest costs as being 2 main line items. Can you put some numbers around that? Like what's your effective tax rate moving from and to? And what's your weighted average cost of debt like is it going to be higher than the 7.8% for FY '26? Tax and interest expense, please?

Yes. Just on the tax, we see the effective tax rate probably moving up by about 2%. I'm sure through the course of the afternoon as we go through in detail, we can talk to the specifics on what is happening in relation to how that links back to the equity raise and the impact to that effective tax rate. And on the interest, the main thing that is really the change or what we're using there in the forecast is we've got a forecast of 4.7% as the BBSY. And so that that plays out. In terms of our margins, they're consistent. We don't have any new refinancing going on in the numbers. So the BBSY that we're using is a forecast of 4.7%.

Which would give you a weighted cost of debt is not too much higher than what you were factoring in, in FY '26, right?

Yes, that's correct. I just think we may have -- people may have been assuming that we've had -- the interest cost would have been a bit -- fair bit lower than what we are seeing, what we're forecasting.

Yes, looking at consensus numbers.

The next question comes from Andrew Dodds from Jefferies.

Just a follow-on. Just curious to hear what FY '27 guidance assumes around private credit flows and also just timing of the sell-down of the $130 million the balance sheet has had to take up in the World Square acquisition.

Just on the World Square acquisition, that $130 million is already coming down. We're probably sitting at uncommitted close to $100 million. And as I said, we've got multiple parties in [ DD ], institutional groups as well as a decent level of further EOIs from our high net worth and family offices. So we think that will be wrapped up over the coming months. On that side, what was the first question? What was your first question, sorry?

Just on your assumptions around private credit flows.

Yes. I mean, obviously, private credit flows are slow for us in the first half of this calendar year -- sorry, this fiscal year. We have pared back on some of those spreads as well. And then we seek to -- we're seeing the opportunity post working through what's been in the press lately. We'll be working through to build that out over the course of the second half. But as always, in our forecast, January and historically, January and February have always been slow in that space as well.

Okay. So are you able just to talk about, I guess, some of the drivers behind the 28% decline in Century Bass EBITDA in the second half versus first half? I mean it's a pretty big decline.

This is for FY '26?

Yes.

Yes. Look, to be honest, at the half year, I think we -- and even going back a year ago, we foreshadowed that the opportunity and the margins were tightening quite considerably on the spreads. And that has actually played out as we envisaged as part of that process. And as we have gone and sought to work with borrowers who probably provide less risk and what was a very competitive marketplace at the time.

Okay. And then just finally, are you able just to comment on if any of the $278 million of exposure you've got out to Bathla right now, has any of that been independently revalued?

So I can talk to that. Basically, all the facilities bar 1 have been revalued in the last 12 months. The one that hasn't was undergoing a refinance, and that's the reason delay. But the majority of them have been refinanced in the last 12 months. The construction project at Rouse Hill, which is the one project really that's got a little bit of completion left, that was revalued in May of this year. And just to finish on that, also the sales that we're seeing coming through across the portfolio are at those valuation levels.

Your next question comes from Tom Bodor from Jarden.

Congrats John, on a long career. I'd just be interested in the Bass business a bit more. Have you contributed any more than the $4.5 million of your own capital to that business? And do you foresee that you might need to contribute more to complete that project?

We've always had a revolver facility with the Bass business to manage liquidity. So that ebbs and flows. We use that, as I said, manage liquidity into the business. At this stage, we're not -- we're not saying we're going to put any more money into the back of deals, but obviously, we reserve our rights there. We are comfortable with the security pool we have across the portfolio and the embedded equity across those 6 projects. As we said, there's -- the majority of those projects are land bridges and residual stock. The one construction facility is sort of weeks away from completion and tightening, and we're still seeing presales come through there. So look, obviously, it's a moving feast at the moment. But as we've said, it's not material to the CNI platform with the amount of security we have in the security pool.

So what's the LVR on that Rouse Hill construction loan?

We are not outlining our individual LVRs across the facilities for a number of reasons, but including if we are going to sell them, we don't want the market to know what the LVRs are at because that's the offer you'll get for the property.

Okay. And then just on ResetData, is it -- are you expecting the loss to narrow in F '27? Or do you think it could be bigger than it was in '26?

We're forecasting it to narrow.

[Operator Instructions] Your next question comes from Andy MacFarlane from Bell Potter.

Congratulations, John, and all the best for the future. Just on 680 George, can you just comment maybe on how much you plan on keeping at the end? I know in your comments you're down to kind of $100 million, but where do you plan to get to and to keep kind of longer term?

Look, I think yes, we probably don't want to hold too much in there. So I think with the institutional groups undertaking due diligence, the further high net worth and family offices doing the work, I think it will be minimal by the end of it.

Just one other question. Just interested in terms of Bass Capital, can you just make any comments on inflows or outflows over the last few months since the balance date?

Look, the -- as you would know in the press, we did suspend redemptions on the 2 funds. So there's obviously been no outflows out of those. We're still seeing demand from some offshore groups and others to invest and also refinance out some of the facilities within the funds as well. And that's not at discounts.

Your next question comes from Richard Jones from JPMorgan.

Maybe a question for Simon. Just on the Bathla administration obviously happened post balance date. Would that change the credit provisioning you'd have in your accounts?

The very simple answer to that is no.

Okay. Performance fees for '27, are you able to give us a guide as to what they might be?

Similar to '26.

Similar to '26. And let me pass on my congrats to you as well, John, and a long career at Centuria.