Charter Hall Group (CHC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Charter Hall Group 2021 Full Year Results Briefing. [Operator Instructions] Please note that this conference is being recorded today, Monday, the 23rd of August. I would now like to hand the conference over to your host today, Mr. David Harrison, Managing Director and Group CEO. Thank you, sir. Please go ahead.

Good morning, everyone and welcome to the Charter Hall Group results presentation for the financial year ending 30 June 2021, our 16th year as a listed A-REIT and celebrating our 30th anniversary. My name is David Harrison, Managing Director and Group CEO of Charter Hall. Presenting with me today is Sean McMahon, our Group CIO; and Russell Proutt, our Group CFO. I would like to commence today's presentation with an Acknowledgment of Country. Charter Hall is proud to work with our customers and communities to invest in, develop and create property assets on land across Australia and New Zealand. We pay our respects to the traditional owners, their elders past and present and value their care and custodianship of these lands. Turning now to Slide 5 and highlights for the financial year. Slide 5 highlights the continuation of growth and resilience in our results. Operating earnings post-tax was $284 million or $0.61 per share, up 13.3% compared to FY '20 earnings when excluding the CHOT performance fee earned last year. Our return on contributed equity was 16.5%, a leading return within the A-REIT sector. The group's property investment portfolio grew to $2.4 billion as we continued investing alongside our partners and within our funds. The group delivered a 15% property investment return, inclusive of an attractive 6.1% property investment yield. FUM growth continues to be strong with 29% growth recorded in the period or an additional $11.7 billion of funds under management, taking total FUM to $52.3 billion at 30 June. The growth is a result of our ongoing partnerships with tenant and investor customers, delivering positive outcomes for them, which ultimately translates into attractive returns for our securityholders. That growth saw us undertake $10.1 billion of gross transactions as we continued to actively curate our portfolios to drive performance via net acquisitions and developments. The group's balance sheet remains resilient with 5% net gearing and over $500 million of investment capacity and liquidity, whilst the 14.8% NTA growth reflects the quality of our long leased investments, particularly industrial and for triple net sectors. Finally, the group's investment capacity of cash and undrawn debt stands at $6.7 billion. We note this does not include committed but unallotted or uncalled equity commitments, which further increases this capacity. Our focus remains on delivering sustainable growth for securityholders, replenishing our dry powder, strengthening resilience and a vigilant focus on property fundamentals. Slide 6 outlines our strategy, which has been consistent for many, many years. We use our property expertise and customer relationships to create value and generate superior returns for our investors. During the financial year, we deployed $5.3 billion of gross equity. And when I say deployed, that's what we allotted into our various funds and partnerships. All equity sources delivered net inflows. Over the last 5 years, according to Realfin, investors globally have invested USD 41 billion into global unlisted real estate funds. On the list of managers in the Realfin survey globally, Charter Hall is ranked sixth in the world for total equity raised in real estate in the last 5 years. This is a testament to our excellent investor relationships and a strong performance we have consistently delivered for investors over many years, an achievement of which we are very proud. Of the $10.1 billion of gross transactions this period, we acquired $8 billion of assets and divested a further $2.1 billion, nearly double our run rate for divestments in previous years. Our focus remains on ensuring we manage portfolios to preserve capital and drive resilient income returns, optimizing the earnings growth from the assets we manage. Finally, we continued to focus on investing alongside our capital partners. The CHC property investment, or PI portfolio, delivered a 15% total return this year for CHC securityholders. Slide 7 highlights the consistent growth in earnings and distribution Charter Hall has delivered for investors. Over 10 years -- or the last 10-year financial period, this has averaged 14.5% annual growth in pretax earnings and 10.4% annual growth in grossed up distributions. I mentioned at the beginning of the presentation this is Charter Hall's 30th anniversary year and our 16th year as a publicly listed company in Australia. There have been many milestones over this period. This time line selects a few highlights from across the years to showcase the evolution of the group into the manager of the largest portfolio of sector-diversified assets in Australia. Throughout the years, we have been consistent in our approach to partner with leading tenants, looking to grow alongside them and curate portfolios that are resilient and deliver sector-leading returns for investors. It's in our DNA to manage external capital. Turning to Slide 9. The history of partnership and delivering consistent OEPS growth has also translated into significant outperformance of total shareholder returns for our shareholders compared with the A-REIT index over all time periods. We are proud to have delivered our securityholders outperformance over every time period since our listing, and we thank you for the ongoing support of Charter Hall. Having regard to the leading earnings and fund growth delivered by the senior leadership group at Charter Hall and the desire to continue that momentum, the Board has created an incentive and retention plan designed to reward exceptional total shareholder return growth with performance rights that have a 5-year testing period, one of the longest testing periods in the sector, with a further 2-year service condition. Details of participation in this plan, which will be made available to less than 5% of our current head count are contained within the Directors and Remuneration Report within our financial statements. From my perspective, the growth and success of Charter Hall delivering outperformance for its investors and shareholders over many years has significantly enhanced the value of our senior talent, something I'm very keen to see protected and nurtured with an aligned plan that links their performance with continued relative and absolute performance for our shareholders. Turning now to Slide 11, where we summarize activity in the group's fund management platform. We remain well diversified by equity source and by sector where we have selected and curated portfolios, which have captured the strong growth in logistics and in the triple net sectors, whilst the sector-leading WALE of our national office portfolio has driven resilience in growth in asset valuations. The strength of our long WALE retail and convenience shopping center retail assets has also demonstrated the team's focus on relatively low key cost shopping center assets and the benefits of cross-sector tenant relationships. The group's fund management platform WALE has increased to 9.1 years despite the passage of time through lease extensions and new assets that have combined to drive growth in this key metric. The weighted average cap rate across the platform firmed to 4.79% reflecting the quality improvements in the portfolio, exposure to logistics and triple net sectors that have shown the greatest yield compression, a trend we expect to continue. Moving to Slide 12. We see our customers as investors and tenants, many of whom are also ownership partners or potential vendors of sale-and-leaseback transactions. Our top 20 tenants make up almost 60% of the platform's net rental income generated annually. These tenant customers are heavily concentrated in nondiscretionary industries and sectors. 24% of platform leases are triple net, and cross-sector relationships continue to drive platform growth. The resilience of our major tenant customers and our concentration towards these essential industries underpins the defensive nature of our portfolios and their ongoing performance. Slide 13 depicts the FUM growth split by sources of equity over the last 5 years. Portfolio curation is an important driver of FUM performance. We continue to be an active buyer and seller of assets, constantly looking to improve portfolios and deliver growth. Our development completions and the growing pipeline of captive development projects also provide a pathway to deploy our considerable investment capacity. Our focus on well-located, modern assets leased to high-quality tenants on long leases with in-built rental growth is a simple formula. Importantly, it translates into assets that provide ongoing capital growth and this period was no exception with net valuations -- revaluations again contributing to FUM growth of $4.1 billion during financial year '21. As indicated in the graph on the right-hand side of the slide, we have seen a compound annual growth rate of 24.5% in funds under management since June 2016. The growth has been consistent across our equity sources, providing all equity investors access to these growth opportunities. Turning to Slide 14 in our sale-and-leaseback activity, a key pillar of our growth. Charter Hall continues to be one of the leaders in partnering with corporate Australia to meet their property needs. We see ourselves as a capital provider and property specialist that can assist corporate Australia to advance their growth potential. Importantly, this provides our investors with investment opportunities that are difficult to access and that don't require competing in the open market to secure. For our tenant customers, it's an opportunity to unlock capital management opportunities while retaining control over critical infrastructure and property assets through long-term leases with multiple options. For Charter Hall, it's an integral part of our business, central to our growth and a clear expression of our partnering with tenants and investors and that's why we've been successful in executing over $10 billion of sale-and-leaseback transactions. Whilst on transactional activity, Slide 15, further evidence that the strong equity flows that saw us active in deploying equity into developments, acquisitions and sale-and-leaseback transactions. Notwithstanding the challenges presented by COVID, we are active across all sectors and we're quick to seize on opportunities that presented themselves. As discussed, sale-and-leaseback transactions continued to drive much of our activity as we look to actively partner with our tenant customers to create mutually beneficial outcomes. Examples during the period include the expansion of the BP partnership into New Zealand, the $280 million Telstra telco exchange sale-and-leaseback transaction in the heart of Sydney CBD, multiple Bunnings transaction and the acquisition of the David Jones flagship store in Sydney CBD, quickly followed up by the acquisition of the Myer store in Bourke Street Mall in Melbourne. Repeat customer transactions are a healthy sign of delivering on our customer-centric objectives, many of which reflect our capacity to deal with customers in multiple sectors. Turning to Slide 16 and our development book. The group continued to progress various developments across its portfolio, creating investment-grade properties and adding significant value through enhancing both income yield and total returns. It's been a strong period for completions with $1.1 billion of developments delivered during the past 12 months. Industrial development continues to grow with a total industrial pipeline now at $3 billion, complementing the $5.3 billion office pipeline of committed and uncommitted projects. The forward pipeline of committed projects will generate high-quality, long-leased assets for our funds and partners while providing attractive incremental FUM growth for CHC and enhancing our credentials to attract further capital. Slide 17 outlines our equity flows. Our strategy of accessing multiple sources of capital continues to deliver growth in all segments. Our pooled funds continue to generate strong investor interest with CPIF having closed 2 significant equity offers last calendar year. Our wholesale partnerships are also very active during the year with a newly created partnership with global -- sovereign wealth fund, GIC, for the acquisition of the Ampol portfolio in Australia; VFMC and Telstra Super investing into $353 million portfolio of Bunnings centers, extending the growth of our long WALE hardware partnership; and Dutch pension fund, PGGM, establishing a new logistics partnership with Charter Hall; whilst our Canadian pension partners, QuadReal, also invested in a future development at North Quay in Brisbane. As I previously mentioned, our direct business also continues to enjoy strong support from investors with inflows having recovered to pre-COVID levels and averaging approximately $90 million per calendar month. In summary, we continue to enjoy the support of capital partners given our ability to successfully deploy capital in an attractive acquisition and development opportunity landscape, investing alongside them to cement strong alignment of interest and generate healthy returns for both partners and CHC securityholders. I'll now hand over to Sean McMahon, our Chief Investment Officer.

Thanks, David, and good morning, everyone. Our property investment portfolio has increased to $2.4 billion. Occupancy is broadly stable. And through active asset management, the portfolio WALE has increased to 9.1 years. Our weighted average rent review remained strong at 3.1% and the weighted average cap rate has firmed to 4.86%, reflecting the quality of the assets we have invested in. The portfolio remains well diversified across sectors and by investment with an over 80% weighting to the core East Coast markets. As David highlighted, growth in the property investment portfolio reflects the group's desire to continue and invest alongside our investor customers and ensure a strong alignment of interest. Now let's turn to the property investment portfolio movement. During the period, our investment portfolio grew to $2.4 billion with increased valuations and additional new investments. Our ability to recycle capital to support new fund initiatives and drive returns for securityholders is a very important part of the success of the group. The chart on the right-hand side shows the growth of our total property investment. Pleasingly, despite cap rate compression across the assets we invest in, our PI yield remains attractive at 6.1%. Now turning to Slide 21. And as highlighted, no single asset contributes more than 5% of portfolio investments and our tenants are heavily weighted towards nondiscretionary industries. More broadly, across the platform, we enjoy very strong tenant customer relationships. These relationships often span asset sectors and multiple properties. 76% of our tenant customers lease more than 1 tenancy from us and 39% of our tenants are customers across more than 1 asset class. This naturally drives retention with 81% of tenants re-leasing with us during the year. Now moving to ESG on Slide 22. Climate resilience, recognizing the role we play in communities and responsible business are embedded in everything we do at Charter Hall. During the period, we were recognized in the 2020 PRI Leaders' Group for our work in climate reporting across the platform. We've further advanced our solar strategy rollout with 41 megawatts of solar PV installed across the platform, which would produce roughly enough electricity to power the equivalent of 8,305 homes. I can also report that as a result of our initiatives, our industrial portfolio is now 100% supplied by renewable energy. We are on track to have 100% renewable energy in place over our office portfolio in the financial year '22 and we'll have 100% renewable energy in place for our retail portfolio in financial year '25. We've seen a 7% reduction in our emissions intensity since our base year in financial year '17 despite a 37% increase in our floor area over the same time period. As a result, we are well placed to meet our net zero target for Scope 1 and 2 emissions by 2030. We also remain committed to engaging with the communities in which we operate, donating staff time and resources in support of initiatives that are of benefit to those in need and that directly benefit the communities in which we operate as part of our Pledge 1% commitment. Our focus on recognizing the value of diversity means Charter Hall has a well-balanced workforce with 55% of employees female and 30% of women in senior executive positions, leading to us being recognized as an Employer of Choice for Gender Equality. Finally, we continue to focus on ensuring we operate with the highest level of governance recognizing our responsibilities to our investors and the community. We are progressing with our alignment on TCFD reporting and have published our first modern slavery statement, outlining our efforts to prevent occurrences of modern slavery in our supply chain. I will now hand over to Russell to provide details on the financial results.

Thank you, Sean, and good morning to everyone on the line this morning. On Slide 24, our earnings summary for the year is presented. As has been outlined by David and Sean, our ability to continue momentum in raising equity, investing to grow our funds under management through both acquisitions and developments has resulted in a very successful financial year. Our investments in our funds and partnerships generated $123 million of EBITDA during the year at an average yield of 6%. It is worth noting that the composition of our investment portfolio varies over the course of the year. Development EBITDA for the year was higher when compared to FY '20, but it represents only 9% of total EBITDA as we continued to develop out the portfolio acquired from Folkestone and facilitate opportunities for our funds. Funds management segment generated $204.5 million of EBITDA in the period. As I'll go through in greater detail on the next slide, it was a very strong year where the benefits of scale in our operating model drove further gains in profitability. The contribution of these segments left consideration for depreciation, interest and taxes resulted in operating profit of $0.61 per security. Distributions at $0.379 per security were maintained in line with 6% per annum growth as guided and resulted in a payout ratio of 62% for the year and net retained earnings of $0.231 per security or 38% of operating earnings. Now turning to Slide 25. The gains made in fiscal '21 and over the past few years resulted in the $52 billion of funds under management reported today and are reflective in the results for our property funds management business. Firstly, just looking at FY '21 revenue. Fund management fees reflect the scale gains in FUM achieved by the business with a year-on-year increase of 23%. At $10 billion of gross transactions, the business was incredibly active with FY '21 representing the highest level of transaction activity in our history. It is worth noting that the comparative period included the $98 million of performance fees relating to the CHOT fund that was realized in FY '20. With respect to expenses, as mentioned at the half, the COVID operating environment resulted in a significantly lower operating cost in the second half of FY '20 and into the first half of FY '21, reasons ranging from a head count and salary freeze in the business to a near elimination of travel and entertainment costs. As we moved through the second half of the year, we saw costs and staffing levels start to normalize and are reflected in the comparative half -- first half to second half period. Now looking at our results and profitability. Excluding transactions and performance fee revenue, the business experienced substantial margin gains from FY '20 to FY '21. For the year, the funds management segment margin was maintained at 55%, a substantial gain from FY '21, where this was 41% and reflects the continued scale gains and operating leverage in the business model. The additional margin and scale saw this adjusted EBITDA measure increase by 62% to $137.6 million in the year. On Slide 26, the balance sheet and returns metrics are summarized and are largely consistent with prior periods. Our property investment portfolio was $2.4 billion at the balance date. And when combined with cash, represented 90% of our total assets. Our investment capacity at headstock at 30 June was more than $0.5 billion and comprised cash on hand and $200 million of undrawn credit lines. This capacity provides the business with significant financial flexibility. In April, we issued a $250 million 10-year bond in the Australian market that currently cost us about 1.5% per annum. This bond issue following a series of issues by CLW, CPIFs and the Telstra Exchanges portfolio in the Australian MTN market. At year-end, our balance sheet gearing was 5% and our Baa1 credit rating was affirmed by Moody's. We manage our capital to support growth and to maintain financial flexibility. During FY '21, in addition to driving profitable growth, we generated very strong returns on capital employed. And going forward, we will continue to be focused on investing our capital to generate attractive risk-adjusted returns on a per-security basis. Moving on to Slide 27 and capital management in the context of the broader group. At 30 June, the business had $6.7 billion of available liquidity represented by cash and undrawn lines and excluding committed but uncalled equity and more than $20 billion of facility limits. As noted, we are actively working to increase the volume of capital markets transactions to further diversify sources of debt capital and currently have 7 credit-rated entities, all with investment-grade ratings. We're also exploring further opportunities to access the green financing markets, either through loans or capital market issuances. Across the group, the average maturity was maintained in line with FY '20 at about 4.4 years with a weighted average cost of debt of just over 2%. The graphic below the table shows that we continue to manage our funds and partnership gearing levels at conservative levels, but most importantly, at levels that are appropriate for each of the funds and their investors. Now I will pass to David to comment on our outlook and guidance for FY '22.

Thanks, Russell. Turning now to Slide 29 and our earnings guidance. Based on no adverse material change in current market conditions, financial year '22 guidance is for post-tax operating earnings per security of no less than $0.75 per security, which represents approximately 23% growth over FY '21. FY '22 distribution per security guidance is for 6% growth over FY '21. That now ends the prepared remarks. And I'll now invite your questions.

[Operator Instructions] Your first question comes from Lou Pirenc with Jarden.

Two questions for me, if I may. First of all, can you just give an indication of kind of what performance fee assumptions you've made for your '22 guidance? I mean, clearly, there weren't many -- sorry, performance fees in '21, just to see the magnitude there?

Thanks, Lou. We don't normally provide performance fee guidance or composition or guidance for each year. I can confirm that in FY '21, there was $0.01 of the $0.61 relating to performance fees. And all I would guide you to is the fact that we have a number of funds, particularly industrial and the Bunnings wholesale partnership that are tested in FY '22.

Great. On the second one, Russell, quite a significant -- or a reduction in the comp management and corporate expenses. Any one-offs in that in '21? Or is this a good base going forward?

No. There's no one-offs. But I would indicate that it does have an effect of COVID-19, where we had a head count freeze and a salary freeze in the business that kind of overlapped the end of FY '20 into FY '21. So in the first half, the operating costs were relatively low, lower than normal levels, and you saw that pick up in the second half. So with the further growth in FY '22, I wouldn't expect that to be flat. I would expect that to continue to increase, but not obviously at the rate of our growth.

Your next question comes from Ben Brayshaw with Barrenjoey.

Just a question on the development investment, the carrying value of $75 million on the balance sheet. Could you just talk about the composition of that? Does that include the property on, I think it's Roma Street in Brisbane, and does it include further inventory for the FLK workout?

Ben, thanks for the question. It's a combination of a number of things. There are still equity investments or WIP from the Folkestone business. We have a number of other development projects where we've originated the project in our funds and partnerships are effectively acquiring the land and funding progress payments. We typically structure those so that the funds and the partners are funding the projects and the Charter Hall Group may provide a rent guarantee, which typically is less than or equal to the predicted profit. So as we lease up the projects, we'll recognize development investment earnings as they move through to completion and obviously move through to 100% occupancy.

Great. And just on the performance fees that have been accrued for in the statutory result in relation to the co-investment of $15.9 million. Could you comment on whether they include an accrual made within CPIF?

As I said to Lou, we're not going to give composition or guidance on performance fees. All I would say is that what is typical is that our underlying funds and partnerships would accrue a performance fee. It doesn't necessarily mean that we're accruing performance fees as revenue at a CHC level, there's different standards under the accounting standards. But as I alluded to earlier, you all know what are the funds and partnerships that have testing dates in FY '22 and that does include CPIF.

Your next question comes from Sholto Maconochie with Jefferies.

A lot of them have been asked on the performance fees. But if you take your proportionate share that you booked in the statutory of $15.9 million and you sort of look at the funds that are going to likely pay in your disclosure, you've got about a co-investor of 9% in those weighted. That implies like circa $170 million performance fees. Is that the order we should be looking at this year?

I'll repeat what I said before, Sholto, we're not going to give you composition or guidance. All I would say is that the percentage stake in each fund is quite different and it's disclosed in the annexes to the results presentation, what percentage stake we have in each fund or partnership. As I said in the previous question, the -- what is provided for in the underlying funds the future liability is not necessarily what we would recognize. But as I said earlier, in FY '22, we have quite a few funds that have got a performance fee testing date. And given a high proportion of those are in the industrial sector and also the Bunnings partnership, the long WALE hardware partnership, you guys can see from what's happening with valuations and cap rate compression in those sectors and it gives you a guide to which of the funds that we would expect to be generating earnings recognition in FY '22.

All right. That's quite material. And then just on the MTN. How much have you deployed? Obviously, that helps you co-invest to grow both your earnings and -- alongside your partners. How much have you deployed of that since you issued in April, the $250 million for your share?

Well, it's Russ here. Because we hold cash in excess of that on our balance sheet right now and cash is fungible, so it's tough to connect the two. So we actually still hold cash in excess of the amount raised from that deal.

Okay. And then just finally, you've obviously had a lot of big, strong year with sale and leasebacks. And are there any other asset class or alternative assets you're looking at that you're not currently in? Or can you talk about where do you see the incremental investment coming from this year?

Look, I think our appetite is not going to change much from what's been consistently articulated over several years. We're still pretty focused on high-quality corporate and government tenants in all sectors. We've got probably the longest WALE of any major office platform in the country. We've got the longest WALE of any industrial platform in the country. And obviously, our focus on the triple net sector is allowing us to continue to do quite a lot of sale and leaseback both off-market and on-market. So I don't see any major changes there in terms of our sort of focus on which property assets and which property sectors are going to continue to outperform other mainstream sectors. And as you're aware, we're growing our social infrastructure portfolio initially through the acquisition of the Folkestone platform, but we've significantly grown other parts of social infrastructure like data centers and telco exchanges, et cetera. So I wouldn't think there's going to be too many changes from what you've seen from us for several years.

Your next question comes from James Druce with CLSA.

Just on your gross equity inflows, $5.3 billion, pretty bullish. Can you just talk to the momentum on that front? Have you seen any changes in trends in sector? Or is it really just tenant led as you're alluding to before?

Thanks, James. I think one of the impressive things about our business is that if you look at the 3 equity segments that we report, the direct business, the wholesale partnerships and pooled funds segment and the listed REITs, over several years they have all consistently been providing a similar compound growth in equity flows. I don't see each of those changing that much. Our direct business is by far the biggest platform in Australia for offering retail and sophisticated and high net worth and family office investors an opportunity to invest in fantastic long WALE sort of office, industrial and diversified products. I think in our wholesale business, we offer our fund and partnership investors a multitude of alternatives for them to deploy their appetite. And the REIT sector, as you know, we've got 3 separate REITs that offer different investment opportunities for our listed investors. So I actually don't see much changing. As you outlined, FY '21 was a strong year for both gross inflows and net inflows. It's very difficult to sort of predict how much equity you're going to raise and deploy in each of those segments. But if the last 5 to 10 years is anything to go by, we've established a strong franchise in each of those equity segments. So we think that will continue. There's no doubt, low interest rates are conducive to investment in real assets and we don't see that changing, whether it's sort of wholesale capital or the unlisted direct segment, or frankly, the listed segment.

Okay. And maybe just a run rate for the incremental capital you're putting into the funds going forward. Is it still around that sort of 5% mark?

It varies depending on whether our external capital partners have a significantly higher appetite to deploy than we do. We've been very consistent for many years saying that we don't believe we need to raise equity. We have a significant level of retained earnings. We have the ability to recycle and sell our co-investment stakes to other partners. And if you look over the last sort of 5 to 10 years, our co-investment stake as a percentage of total equity under management has been coming down and will continue to come down. So you can only -- you only have to look at the percentage stakes in each of the funds and partnerships that's outlined in the results deck to -- and compare it to 5 years ago to see what the trend line is and I don't really see that changing that much. With the scale and the credibility we've achieved delivering outperformance for our investors, there is an ability for us to start new partnerships with lower co-investment stakes than perhaps we would have 5 to 10 years ago. So hopefully, that gives you a bit of guidance.

Yes. No, that's good. What does that mean for the payout ratio? It seems like you're retaining more cash than you potentially need.

Well, I would take a view that we've demonstrated over many years that we can reinvest the retained earnings and deliver pretty strong return on equity for our securityholders. So I'm not too perturbed about the strategy we implemented many years ago to deliver 6% compound growth in DPS and retain earnings to fund the growth in the business, and we don't really see any need to change that strategy.

Your next question comes from Stuart McLean with Macquarie.

First, a couple of questions just on the P&L. The first is on the development investment's EBITDA going from $17 million to $34 million and it looks like the second half could have been something around the $27 million mark. Can you just give an idea of exactly what's driving that? And then how do we think about that going forward over the next year or 2?

Russ?

Yes, Stuart, like -- as you know, development is pretty lumpy. So we actually had a real -- a couple of realizations and completions, but also made progress on a few of the developments where we're managing for our funds. So it's hard to project on a smooth basis, but I think we'd be comfortable going into the next year. Probably development earnings, we would estimate probably between the $30 million to $40 million mark depending on timing of leases and completions. It is multiple projects. We don't take a lot of development risk at all at the headstock. This is usually just facilitating for our funds and partners because, as you know, we do the great predominance of all development down in the funds. And there's still [indiscernible] relating to FLK completions.

Okay. And then second question, just on the funds management P&L as well. So funds management fees are up 22%, property management fees are up 11% and leasing fees are up 18%. Can you just give some color on why the growth in those property management fees and leasing fees is less than the FM fees? Is it composition? Is it more triple net leases? And again, kind of how that sort of growth?

Yes. There's a few factors because like I just said at the start with property management, it is the composition, obviously, of the portfolio as it grows. If they are triple net, we're not as active with providing the volume of services we would for other assets. So you'd see that sometime grow at a lesser rate than, let's say, fund management fees, which ties the FUM more directly. Leasing is variable, but the increase in leasing also links back to our development activity. So a lot of that is industrial leases as well as the leasing activity that was delayed in retail. Greg's retail team is very active re-leasing and leasing property specialists, in particular, coming out of the COVID kind of lockdown. So leasing will be more reflective of development activity as well as the portfolio growth. Property management is compositional. And then obviously, fund management ties directly back to FUM.

There's no doubt as we grow the volume of triple net leased assets, we're really getting very little incremental revenue or earnings from property management. However, the investment management and asset management revenue will generate a higher profit margin. So whilst it's not necessarily driving property management revenue, it is a pretty significant margin expansion driver for the whole platform. So -- and the other thing I'd say is the multi-tenanted asset classes, whether it's shopping center retail or office, and to a lesser extent, industrial and logistics, it's pretty active and it's FTE intensive to be doing the sort of property management and leasing. So those 2 factors are really why you're probably going to see less margin expansion in property management than, say, the FUM growth.

Thanks for the detail. My last question just comes on the backlog you're saying, Dave, just in terms of profitable growth. Many listed REITs that seem to be wanting to get into funds management that the wealth bidding process seems very competitive. I was wondering if there's any fee pressure at all across any line items that you're seeing across your platform? Or are you being able to hold your fees despite the increasing competition?

We're not going to chase a race to the bottom on fees. I think when you've got credentials, and more importantly, as I mentioned before, long-term outperformance of your funds and your partnerships, you're potentially under less pressure than, say, people starting off trying to sort of jump into the funds management business, which, as you alluded to, seems to be a growing trend. So we'll be judicious around who we partner with, what sectors we want to partner in. And I'm sort of -- having grown this franchise to the scale it is, I really don't see why we need to be, as I said before, joining a race to provide the lowest fees. There's a great saying about pay peanuts and get monkeys. So you've got to be careful about the quality of the service you get just if you're completely fee focused.

So the client conversations occurring across the funds you have at the moment?