HMC Capital Limited (HMC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the HMC Capital Limited FY '23 full year results briefing. [Operator Instructions] I would now like to hand the conference over to Mr. David Di Pilla, Managing Director and CEO. Please go ahead.

Good morning, and thank you for joining today's call. Joining me on the call today are Will McMicking, Group CFO; and Misha Mohl, Group Head of Strategy and Investor Relations. Before we commence, HMC Capital would like to acknowledge the traditional custodians of country throughout Australia and celebrate their diverse culture and connections to land, sea and community. We pay our respects to their elders, past, present and extend that respect to all Aboriginal and Torres Strait Islander people today. As I reflect on the last 12 months, I am incredibly proud of what our business looks like today compared to the same time last year. We've had another active period of fundraising, new product creation and capital deployment, which is accelerating our evolution towards a high ROE alternative asset manager. HMC today is a significantly stronger business with a deeper and more diversified fundraising capability. I'm proud that this has all been achieved in an environment over the last 12 months of unprecedented interest rate rises, which have caused subdued M&A and capital markets activity across the broader market. Our high-quality management team has adapted to the more challenging environment and continue to grow our funds under management over the last year. Turning now to Slide 3 to provide a brief overview of the group. HMC is today a high [ convictional ] alternative asset manager with $8.1 billion of fund across real estate and private equity. Since listing October '19, HMC has organically created 5 discrete vehicles, which are underpinned by diversified sources of capital and focused on scalable investments strategies exposed to attractive megatrends. Since listing, we've delivered a TSR of 109% and grown funds under management by a compound annual growth rate of 126%. The growth opportunity for the business and our investors is significant. It will expand further as we move into additional alternative asset classes and will include infrastructure, energy transition and private credit. Moving now to Slide 4, which illustrates our investment track record and our journey today. I won't go through each transaction on this slide, but it clearly highlights the roadmap behind our successful fundraising and capital deployment track record since the original Masters transaction in 2016. This slide reinforces our point of difference, which is our ability to execute large complex transactions quickly to generate shareholder value. Moving now to Slide 5 or Slide 6, I should say, to discuss the key results highlights of financial year '23. HMC Capital delivered financial year '23 operating earnings of $82.1 million or $0.264 per share. Our funds under management increased by 40% to $8.1 billion. Pleasingly, this underpins total funds management revenues of $70 million in financial year '23, which was up 72% year-on-year, excluding transaction fees and one-off items. During the year, we successfully executed on 3 major fund management initiatives. In September 2022, we launched our first private equity vehicle, a HMC Capital Partners Fund I. The fund currently manages $400 million of assets, and the investment performance has been strong with the fund up 19% since inception. In June 2023, we announced a successful first close for a new $800 million institutional investment strategy targeting last mile retail logistics assets. We are delighted to have partnered with Funds SA and look forward to actively growing this strategy with them in the future. And finally, in May 2023, we announced an unlisted institutional healthcare and life sciences fund seeded with 7 hospitals leased to Healthscope. Over the last 3 months, the fundraising has progressed well and is on track for first close in late September 2023 to coincide with settlement of the third and final tranche of the Healthscope portfolio. We have 3 global and domestic investors representing $250 million plus of demand that have completed DD, have obtained IC approvals and are now working through final documentation. In addition, we have further investors working through their DD and IC process at present. Pleasingly, investor demand is now likely to exceed available supply for this strategy with a potential need for scale back, which is extremely pleasing given the market backdrop. However, this also highlights the quality of the assets and the attractive transaction structured and negotiated by HMC. Today, HMC's balance sheet is in strong shape with $1.1 billion of liquid tangible assets and undrawn debt capacity to support our significant growth ambitions. I'll now turn to Slide 8 and highlight our fund management strategy. HMC's strategy is to be a diversified, large-scale alternative asset manager. Our long-term growth aspirations are significant. This is demonstrated by business models we admire and aspire to move toward over the longer term. We are realistic that our business today is young and a long way from the entities identified on this page. We recognized a few years ago that if we continue to deliver sustainable returns for our investors, our growth runway can be long and potentially uncapped. 6 months ago, we stated our ambition to target return on equity of 20% over the medium term. This remains a key focus for the Group. Moving now to Slide 9, our HMC Capital economic flywheel. The flywheel illustrates HMC's successful transition to a more capital-efficient and higher ROE business model. We expect this to continue as we actively manage our $1.1 billion capital base to support new growth initiatives which will accelerate and diversify our funds under management. The evolution of our business model will also see HMC generate meaningful profits from activities such as transaction underwriting fees, asset warehousing and investments going forward. We've made several key strategic hires in recent months, which further add to our internal capability in this area. As such, HMC is well positioned to organically grow funds under management beyond $10 billion in the short term. We are now setting our sights on the pathway to $20 billion and beyond. As I've previously stated, HMC's cost base can support significant growth in our existing platforms, but you should expect our flywheel to continue to evolve as we use our balance sheet to diversify into other sectors. This is now a good segue to discuss the recent $1.2 billion Healthscope transaction on Slide 10. In March this year, we acquired 11 private hospitals leased to Healthscope. This was the largest healthcare real estate transaction in Australia since 2019. Importantly, we avoided a competitive auction process by partnering with Brookfield private equity on a highly structured proposal, which gave the [ vendor certainty ]. As a result, we secured the portfolio on highly attractive terms with the purchase price implying an NOI yield of 5.8% and unlevered IRR of over 9%. This transaction has propelled the scale of our healthcare platform and accelerated our plans to establish an unlisted healthcare and life sciences vehicle. Importantly, HMC used its balance sheet to underwrite a meaningful portion of the transaction, including the equity raising for HCW and the unlisted institutional fund. This will be a high ROE transaction and will generate over $23 million of fees in the first full year, and we expect to fully recycle the capital used to support this transaction before year-end. Accordingly, reallocating the capital into higher ROE opportunities, the flywheel spins again. Moving now to Slide 11 of the presentation at our new growth frontiers. In real estate, our business today manages $7.8 billion of assets. As I said earlier, HMC is transitioning into a much higher ROE business and over time towards our 20% target as we continue to scale and use our existing capital base more efficiently. Our real estate platform has a number of embedded growth drivers. For example, HMC's Last Mile Logistics retail fund strategy represents an attractive organic growth opportunity, which could evolve into a series of fund vintages of up to $1 billion per annum being raised in the future. Our confidence in growing this platform is well founded. We have an emerging pipeline of attractive opportunities. Our group has strong core relationships with retailers and a well-established track record in repositioning these assets. And finally, we are investing against a growing megatrend of demand for last mile retail logistics assets. We also see a major opportunity to organically grow our healthcare exposure in Australia through new greenfield developments. We've already secured a number of strategic sites for future private hospital and healthcare developments, which could add another $1 billion of funds under management in our unlisted healthcare fund. The institutional investors for the unlisted healthcare fund we are currently raising have expressed interest in funding the healthcare development pipeline and will be granted a first right of refusal over the development opportunities. And today, we are highlighting a new potential growth frontier. We've identified an opportunity to grow our Healthcare and Life Sciences platform into a global strategy of time. Our confidence in being able to build out this strategy globally steps from a number of factors. The significant and growing institutional investor demand from both Australian and global investors as they actively down weight from structurally challenged subsectors such as office. And secondly, the limited opportunity for these investors to access quality global healthcare assets with a dearth of large-scale managers focused on this sector globally. Importantly, this strategy will be executed in a low risk and conservative manner, either by onboarding an experienced management team or alternatively by an attractively priced asset base with an embedded platform. This will only be undertaken in a capital-light manner in partnership with institutional investors. We are hoping to announce more details around our thinking on this strategy before the end of this calendar year. In private equity, we are focused on building a track record for HMC Capital Partners Fund I. By the end of this month, the fund will have been active for a full 12 months. This will support the fund in securing additional ratings and broadened distribution through more platforms and private wealth channels. We're also having discussions with institutional investors in relation to co-investment opportunities with the Capital Partners Fund. The view of the strategy is a highly differentiated product, which can generate alpha for their portfolios. And finally, we are actively assessing attractive corporate private equity M&A opportunities, which could be executed with institutional capital partners. However, this will only be opportunistically considered when the right opportunity arises. Moving now to energy transition and infrastructure. We've done a lot of work but been very patient and disciplined to date. We're getting closer on a number of opportunities, which include hiring some highly credentialed sector specialists that will form the basis for HMC to launch an energy transition fund later this year. In this space, we will be focused on generating organic FUM growth via capital partnerships. And finally, private credit is a major asset class, which is attracting significant investor interest at the moment, particularly in the commercial real estate segment. We are thinking about how we can build a large-scale private credit business over time, which can play across multiple credit strategies. We are looking at some interesting opportunities, but we remain very cautious at this point in the credit cycle. While HMC is well capitalized, we will remain disciplined with deploying our capital into only the very best opportunities for our investors. Moving now to Slide 12, and I'll provide an update of each of our funds, starting with our ASX-listed HomeCo Daily Needs REIT. Today, HDN manages $4.8 billion of assets, which represent strategic last mile infrastructure for us trades leading daily need and omnichannel retailers. The pricing power of HDN strategically located in metropolitan real estate is only increasing as demonstrated by its recently announced sector-leading leasing spreads of over 6% in financial year '23. This strategy has been highly scalable with HDN's asset base increasing by 94% per annum since listing in November 2020. Pleasingly, HDN delivered a solid financial year '23 financial result, which was achieved despite significantly higher interest and property costs, which were successfully offset by strong top line rental growth. HDN's balance sheet is in a strong position with gearing now towards the bottom end of the 30% to 40% target range, interest rate hedging is above 90%, which we will contribute to enabling it to internally fund its $600 million development pipeline. With a more stable interest rate outlook, HDN is well positioned to resume its strong growth trajectory and remain disciplined with respect to future investment opportunities. Moving to Slide 13, HealthCo, our healthcare REIT. HealthCo is our second ASX-listed REIT, which listed September '21 and owns $1.7 billion of healthcare real-estate spanning private hospitals, life sciences, primary medical, child care and aged care. Like our daily needs strategy, Healthcare is a highly attractive and scalable opportunity with the REIT growing FUM by 87% per annum since IPO. The megatrends underpinning the healthcare industry in Australia are significant, and this will continue to drive strong demand for both existing and new healthcare infrastructure. HealthCo has materially evolved from the time of the IPO with the recent Healthscope's transaction transforming the entity's scale and portfolio quality. The REIT recently joined 2 new FTSE indices and is well positioned for ASX 300 inclusion, which will be announced next week. HealthCo delivered on its upgraded financial year '23 FFO DPU guidance last week, and the management team is making strong progress on 3 key initiatives we highlighted in the results, including unlocking the embedded value in the Healthscope portfolio, completing the institutional fundraising for the new unlisted fund and finally, executing the REIT's $200 million asset sale program to further strengthen the balance sheet. Turning now to Slide 14. The LML fund reached an $800 million final close in June this year and represents our first unlisted institutional vehicle, a huge milestone for the Group and the beginning of our strategy to build large-scale institutional platforms. We're delighted to be partnering with Funds SA and HDN on the first vintage of this fund series. The acquisition strategy for the LML fund is differentiated to our HomeCo Daily Needs REIT. The fund will target larger retail properties, which can be actively repositioned into core daily needs assets with higher quality and more defensive income strength. Our track record, scale and tenant relationships give us real competitive advantage to execute this strategy and generate attractive returns for our investors. In addition, the capital markets environment is creating attractive buying opportunities as we demonstrated with the acquisition of [ state asset ] Menai Marketplace earlier this year. This property was recently revalued up by 17% above the fund's acquisition price. Looking ahead, we expect to launch additional LML fund vintages once we've deployed the funds committed equity with plans to turn this into a multibillion-dollar strategy over the next few years. Turning now to Slide 15. As I highlighted in my earlier remarks, our recently established unlisted healthcare fund was seeded with 7 hospitals from the Healthscope hospital portfolio. The transaction was structured across 3 separate tranches. The first 2 tranches settled upfront with equity support from HealthCo and the final tranches on track to settle in late September. Importantly, this enabled HMC to undertake an institutional fundraising process over recent months. Pleasingly, institutional investor demand for the fundraising has been strong with HMC receiving $250 million of equity commitments from 3 high-quality domestic and global institutional investors. HMC will likely fund the remaining equity commitment of $75 million in the short term. And as I mentioned earlier, we are in advanced discussions with multiple domestic investors to acquire the balance of this position. Our financial close, the unlisted fund will own $1.1 billion of Healthscope hospitals with a brownfield development pipeline of approximately $340 million. Our intention is to grow this vehicle to over $2 billion over the medium term through strategic acquisitions and development opportunities. Moving now to Slide 16. HMC Capital Partners Fund I was established in September 2022 with a $300 million initial equity raising for predominantly high net worth investors and family offices. The fund currently manages $400 million across 3 high-conviction investments. Pleasingly, investment performance has been strong since inception with the fund NAV up 19% post feed, which has outperformed the S&P/ASX 300 accumulation index by approximately 10% over the period. A key driver of this outperformance is the fund's investment in Sigma, which is up over 20% since announcing a $3 billion contract from Chemist Warehouse in June. The fund is also deployed in 2 other high-conviction opportunities, including land lease and another opportunity which is confidential at this stage. Our strategy is to grow the fund to $1.5 billion over the medium term, and we believe the fund is well positioned to secure institutional mandates as we continue to build our track record. Turning now to Slide 17 to discuss our progress on sustainability. This slide highlights our HMC Group sustainability framework, which was designed around our objective to create healthy communities. I'm pleased to report on the following initiatives we delivered over the half, which demonstrates the progress we are driving across our entire platform. Environmental, our 2 REITs are on track to achieve net zero by 2028 and on track with our net zero energy road map with a 15% reduction in Scope 1 and Scope 2 carbon emissions in financial year '23. Our energy management system rollout has now been made to 29 sites, and this has achieved a 23% reduction in consumption. Our solar installations are progressing well across the REITs with over 15 installations either underway or installed. On social, HMC social impact strategy is supported by the establishment of the HMC Capital Foundation and through Community Co, which will support the delivery of our social impact commitments, including our first grant in financial year '23. On governance, we always strive to implement best practice in everything we do. Over the year, we have achieved our 50% gender diversity target across the whole organization. Our fund boards have a majority independent directors and 50% gender diversity and our HMC Group Board is focused on achieving its stated gender diversity ambition ahead of our financial year '25 targets. HMC received a AA rating in the MSCI ESG rating assessment this year. HDN released its modern slavery policy and was awarded 2023 ESG regional top-rated company status with Morningstar Sustainalytics. We're making good, tangible progress on our sustainability strategy. I will now hand to Will McMicking to discuss our financial results.

Thanks, David. And turning now to Slide 19 with the earnings summary. HMC recorded operating earnings for FY '23 of $82 million or $26.04 per share, driven by strong growth in investment income and funds management revenue. Investment income increased by $26 million to $59 million, driven by 19% gain in the carrying value of the HMC Capital Partners fund investment. Funds management revenue increased 9% to $70 million, which was driven by a 72% increase in non-transactional fee revenue, reflecting the significant growth in funds under management. Corporate expenses increased to $26 million and grew well below the rate of fund growth. Property funds management expense increases were offset by the corresponding property funds management revenue as detailed on the following slide, and this reflects the pass-through nature of these expenses. HMC also recorded trading profits of $5 million, including a cash gain from the establishment of the HMC Last Mile Logistics fund. A final dividend of $0.06 per share has also been announced, taking full year FY '23 dividend to $0.12 per share, which is in line with guidance. Moving now to the balance sheet on Slide 21. HMC continues to leverage its balance sheet to support existing and new fund initiatives. Overall, net tangible assets have increased to $883 million or $2.54 per share versus June. Major FY '23 transactions included the March '23 equity raising to provide underwriting support to HealthCo and the new unlisted healthcare REIT in acquiring a $1.2 billion hospital portfolio. To support the transaction, HMC invested $75 million into HealthCo and has funded property deposits of $38 million at June. The other key movement on the balance sheet is HMC's $150 million investment into the Capital Partners fund, which recorded a 19% gain to June. Turning now to Slide 22. HMC at June '23 is in a strong position to continue to support funds management initiatives with low balance sheet gearing and undrawn debt and net tangible assets of over $1.1 billion. Post balance date, HMC also extended the term of its $275 million debt facility to November 2024, which remains largely undrawn at June. Combined with the strong progress of the unlisted healthcare fundraising, HMC is well positioned to maintain a strong liquidity position into FY '24. I'll now hand it back to David.

Thanks, William. And now turning to our outlook and guidance for financial year 2024. HMC has strong momentum and a high level of conviction about the potential to significantly grow funds under management over the next 12 months and beyond. We expect our existing real estate and private equity platform to generate strong organic growth with minimal incremental cost to manage additional funds under management. As discussed on the call this morning, we are actively exploring a range of growth opportunities, which could materially grow and diversify our platform into new alternative asset classes. HMC is positioned to achieve strong underlying earnings growth in financial year '24. The business is also well positioned to generate meaningful transaction for these trading profits and investment gains, which are more difficult to predict at this point in the year. HMC provides financial year '24 DPS guidance of $0.12, which is consistent with financial year '23. Our strategy is to maintain this dividend, which will result in a declining payout ratio over time. This will enable HMC to reinvest retained earnings into high return on equity opportunities. Thank you. I'll now hand the call back to the operator for Q&A.

[Operator Instructions] Your first question comes from Solomon Zhang with JPMorgan.

First question from me was just on guidance. I just noted that you haven't provided quantitative EPS guidance for '24, but you've guided to, I guess, strong underlying earnings growth. Just noting the underlying earnings, I guess, is slightly different to your operating earnings definition. Just wanted to gauge whether that growth is inclusive of trading profits and capital partners profits?

I think the point we would make is that year-on-year between '22 and '23, the amount of underlying fund management growth contribution in the baseline that is coming through there is growing each year. We anticipate that with the new funds that have been raised, will again steadily grow or not steadily, but strongly grow again in '24. So what we're really saying here is that the sort of a part of that that you need to estimate is really the one-off items. So that's things like trading profits, underwriting fees and any capital gains that we may make from warehousing assets. So the baseline is growing strongly in line with our funds under management growth. We're confident in the outlook. We're confident in the positioning of the business. The balance sheet is in strong shape. So we remain very confident. The same strategy we used last year, and we'll continue to use this kind of mechanism for providing our outlook statements in the future.

So second question from me is just the genesis of the Global Healthcare Fund strategy. Was this the product of, I guess, advanced discussions with institutional and wholesale capital? Or was that more perceiving a gap given the strong response to the unlisted healthcare fundraising process?

Being investor driven, it's a function of the fact that we've been speaking to a number of domestic and global investors off the back of the current unlisted fund that we're raising, as I said at the outset of the call, it's likely we'll end up with more demand than we have supply. So that is unlisted institutional fund. Ironically, some of the conversations have been around major global investors saying to us unless we can deploy $1 billion into a strategy like this that's going to be hard. So what we're doing is we're lifting our sites to say, well, can we take this capability into a global forum and potentially do it in a way where it's risk controlled. So that would mean building a platform through people, first and doing it in a capital-efficient, capital-light manner. But we do see a major gap. We see a major opportunity there. And it's very much investor-led, investor driven, and it's in response to the very strong level of demand that we've had for the unlisted domestic fund.

That makes sense. And final one, just on the Last Mile Logistics strategy. Just curious how you're viewing current deployment conditions? Do you feel the bid spread is narrowed? And do you still think there's some way to go?

I think the one thing I want everyone to take away is tough market conditions play to our hands. We love tough market conditions because this group does great deals in tough markets. I mean our marketplace is an example of that, the Healthscope acquisition is an example of that. We expect the back half of this year will show up a lot of very interesting opportunities for the LML strategy.

Your next question comes from Sholto Maconochie with Jefferies.

Just a bit on the result on the financials. If you back out the non-cash profit in which is fair value in commercial in HMC CP, it was still $50-odd-million. But like why was the cash flow so weak at 361,000? This is almost nonexistent. I just trying to understand what was going on with cash flow during the years of timing or what were the moving items?

Sholto, it's Will. I mean we've talked about this before. I mean a big part of the earnings is coming from the co-investments. So it's not just HMC. You've got share of associate income of about $30 million, and that comes through the investing cash flow wherever we book trading profits that goes through the investing cash flow. And the other thing was we took the [ Milano ] Healthscope acquisition fee, we took in scripts, so that's not cash. So the function of investing, looking at both investing and the operating cash flow.

That makes sense. And then just on the -- I think David said there's so much demand, but you're still tipping in $75 million. Is that just -- to the unlisted fund. Is that just to get co-alignment of 14% rather than you don't need to, but you just want to have an investment in that vehicle?

Yes. It's just a timing issue. It's basically, we're talking about raising an unlisted institutional fund from [indiscernible] in 3 months. That doesn't happen very often. So it's really just that the remaining investors are just moving through their process as we speak. And so what we'll do is we said at the time of announcing the transaction that would sub-underwrite that, but we expect that all the HMC capital will be released out of that fund before the end of this calendar year.

So your stake would just be indirectly held through your stake in HealthCo REIT?

Correct. Yes, we won't have any investment in that fund.

And then just on the opportunities. Obviously, you've got a lot of things. I know you say gross not linear. It seems like you've got per Solomon's question, strong underlying growth coming through in the farm business because of the transactions that back-ended for this financial year. So that's growing. So is the delta really just those one-off transaction? And what opportunities present themselves that will drive the additional growth above what you're sort of expecting? And I know it's hard to comment, but is that just for new funds and new verticals? And could you talk about how close you are on those verticals you described in infra, energy and credit?

Two messages I want you to take away is, one, we're going to be very disciplined, and we're going to do it in a capital-light way with capital partnerships when we move into those new areas. I think the second point I want to make is growing funds under management is lumpy, if you want to do it in an organic way. We're not buying it. We're bringing it on organically, and we're creating it organically. The one thing I'm extremely proud of, and we don't -- haven't banged on about it much this morning, but we've grown our funds under management since we sat here this time last year by over $2.5 billion. That's a step change event for the group. The income coming through from that, the funds management fees coming through from that are lumpy. They're not linear. So you've got to basically take all that into account when you project the Group. There is a little bit of a lag effect because of the way we do it. But importantly, it's the most capital efficient way to do it, and it's the way that rewards our shareholders in terms of long-term value creation.

Okay. And then just on the FUM target. So if you look at the committed $8.1 billion FUM, if you take out the $500 million undrawn in LML $7.6 billion. Of the $10 billion target by the end of the year, what's actually in the bank or sort of -- and what do you think will be uncommitted to that $10 billion by the end of the year sort of in the bag and what's not fully drawn, I should say?

Sholto, I don't get that wrapped up about those sorts of targets, but we put them out there to create sort of beachheads and anchor points for analysts in the market to work around. But if you just stop and pause and you start with your $7.6 billion, I talked a lot about the embedded organic growth in the business that will come through. So if you stop and think that HDN has a $600 million development pipeline that it can now fund organically, you could add that off. Now that won't happen next year, but that's embedded, that's there. We've got also a very deep development pipeline coming together at HealthCo. Again, we've got institutional partners now that want to help us deploy that. So that will actually be deployed over the next little while. And then LML, the opportunity invests deep and rich. We think the rising interest rate environment, as we've been saying for years now, is going to cause some of these highly geared unlisted syndicate vehicles to crack. So we could see ourselves deploying that very quickly in the back half of the year and very opportunistically. So again, $10 billion feels like it's within our grasp peer just organically rolling through that. And then what we're throwing out there is we're saying this time last year or even at the half year result, we weren't talking about HealthCo, we weren't talking about the $1.2 billion debt change that created. The year before we weren't talking about events, those events also come along. And then bringing teams on to organically growing to some of the other sectors will also happen. So it's really a matter for you and the market to basically work through that. We're not going to basically fit ourselves down to absolute precise numbers, but we are very, very confident that we'll be able to be sitting here at the end of this year with at least $10 billion under management, committed.

And then just finally, in the capital partners, if you got a third investment, I think the press that it was in a manufactured housing operator a couple of weeks ago. What's the sort of strategy if that is correct in that vehicle to unlock value?

I said we've got a 1/3 confidential investment, and I'll leave it at that.

Your next question comes from Simon Chan with Morgan Stanley.

Just, David, wondering if you could elaborate on Slide 11. You talked a lot to the right-hand side of that slide. But just on the left-hand side, you talked about opportunities under review include complementary platforms, which expand our funds management capability. Can you perhaps double-click on that line and elaborate on what you have in mind there in terms of skill sets that you're after? And were you referring to global healthcare in that bullet point?

Yes. That's a good point, Simon. I touched on it in the call. If we're going to go to energy transition, we're not just going to announce that we're raising a transition fund, we need people and we need capability. So when we talk platforms, it's really a shortcut for people. Real estate, again, if we want to go into the global space, we do need people. So we need capability. So what I would say is the one thing that gets reminded to me continually by our analysts and the team internally is, yes, the Aventus transaction was great. But yes, we slapped $180 million of goodwill on the balance sheet. We don't like putting goodwill on the balance sheet. So we'd be looking to try and go into these areas organically. We've been trying to do it through hiring people and capability rather than paying for goodwill. So we are exploring lots, many and varied ideas. We turn over a lot of rocks here. And as I said on the call, we're only going to execute on the very best opportunities that come across our desk.

By not paying for goodwill on balance sheet. You're essentially rolling out buying an existing fund manager in infrastructure healthcare then. Would that be fair?

Correct.

My second question, as you guys is your stake in CP1 declines to below 50%, can I assume that FY '24, you won't have that consolidation of CP1 won't happen? Because I mean Slide 21 it's consolidated due to your 52% interest. So consolidation will be deleted next year. Is that fair?

Yes. I mean we can't say that will happen, but it's likely to happen in the near term, Simon.

But it's really just accounting treatment the way we see equity accounting, backing out associates or not ultimately and a pretty similar outcome.

Will that then instigate you guys booking distribution in your P&L, both distribution from CP1 in your P&L rather than mark-to-market losses or gains?

On a statutory basis, yes, that's right.

Your next question comes from Ben Brayshaw with Barrenjoey.

I was just wondering if you could clarify with the equity underwrite for the third tranche of the unlisted fund. Has the equity required to settle that? Has that changed since acquisition? Because I thought you were broadly seeking $259 million at the acquisition presentation. And if I heard correctly on the call, you were saying you secured $250 million from 3 investors. So I'm just wondering is the $75 million in addition to the $250 million or is there a timing issue around the allotment of the $250 million?

I'll get Will to answer that.

Yes. So the $260 million quoted in the March presentation was pre-transaction costs, which I think we flagged in the notes. So including transaction costs, only stamp duty it's $325 million.

And just on Capital Partners Fund I. I mean, I appreciate this is not the easiest environment to raise capital in. But I think you're broadly talking to around $300 million as having been committed in February. Are you able to just give an update on, I guess, inflows in recent months and just how that capital raising process is tracking?

What we would say is that it's positive and the inflows are stepping up every day. There's a little bit of inflow trickling in. And so we remain extremely confident that we'll sort of directionally maybe with investment gains and inflows at around 400 over the next month or so, maybe it might be next month. But that's directionally where we're at. And then what we would say to you is we'll then look for 12 months of performance to click over. We're waiting on a second rating to come in, which then means we can go into some model portfolios. And we think just as the entity starts to prove itself up and so on, there'll be natural inflow there. And what I'm talking about info, I'm talking retail, high net worth wholesale. And then when we talk institutional, what we're talking about there is really more bespoke SME type arrangements around specific opportunities. And so that's where we can see the step change coming towards that sort of $1.5 billion number. Now that we can't predict when that will happen. We're not going to flag and telegraph our punches here, but that could be just you will pick up the pipe one day and bang there's another $1 billion in there. So we're working hard, we're focused, and that's the strategy at this point.

Just one final question on Global Healthcare. I mean just conceptually, how should we be thinking about the potential strategy for that vehicle? And which -- I mean the obvious question is which jurisdictions broadly, would you be looking to deploy capital into presumably with HCW and unlisted fund in Australia, it would be international?

Yes. So it's outside of Australia, obviously. It's going to be rule of law OECD countries where we believe we can bring some value add. We're not going to do anything crazy. We're not going to blow ourselves up. It's going to be very considered. It's going to be very cautious, but we do see a big scalable opportunity there that will set us apart. Now we don't, as an organization, go and make statements unless we're confident we can deliver. I remember sitting on a call probably not this similar to this 2 years ago where we said we're going to go and build a healthcare REIT, and we're going to be an investor in the healthcare real estate space in Australia. Fair to say 2 years later, we're now the biggest investor in Australian healthcare real estate. So if we do this, we're going to be considered, we're going to be cautious, and we're going to be prudent, but we do see the opportunity being very real and very executable.

Your next question comes from James Druce with CLSA.

Yes, I just wanted to clarify one of Sholto's questions just looking at capital deployed today. So is it right in saying that today, you've deployed 7.6 at the moment? And then what do you have sort of visibility on for the next 6 months?

I think Sholto's point is that if you look at the LML strategy, we've got $8.1 billion of committed funds under management. LML is about 200 of the 800 deployed. So that's obviously part of the difference. So what we're saying there is we've got dry powder at LML if the opportunities present between now and the end of the year, we'll execute quickly, and we'll be in a position to deploy. So that's just a question of opportunity, that will be opportunity driven. Again, as I said earlier, we're just not in a position to telegraph our punches to people. The second thing I would say to you is that in terms of the rest of it, there's dry powder within both of the REITs now. They've now got themselves into a position where they've got very strong balance sheets and the ability to undertake organically driven acquisitions within the resources and the capital base that they both manage today. We've got partners coming into our unlisted healthcare platform that are all hungry to deploy more, 400 to look at other opportunities. These are very deep profit type investors. We're talking global sovereign wealth funds. We're talking a global multinational pension fund. We're talking a multi-manager of global scale, one of the biggest in the world. We're talking about domestic Aussie super funds. So the opportunity -- the capital -- there's no shortage of capital. Our job is to match great opportunities with capital. And so in order to do that and in order to continue the track record of the group, which I talked about on the second slide this morning, it's about being disciplined and patient and having the capital ready to deploy when the opportunities arise. And that's what we're good at as an organization, in my view.

All right. That's clear. And just roughly, how much cash is coming back to HMC in the next 6 months for the balance sheet?

So the way I would describe that is the underwrite in the unlisted healthcare fund was an under write. We didn't actually have to fund anything there, effectively when that settles will simultaneously closed the fund, so investors will simultaneously come into that fund as we go to financial close on tranche 3. In terms of HMC, today, we have no effective drawn debt or very minimal drawn debt. We have $275 million of committed funding lines that are not drawn as well. And then we have liquid investments in our REITs and net tangible assets that are sort of in the order of another $800 million. So if you add all that, we've got dry powder and liquidity within the group of about $1.1 billion. But we'll be opportunistic in terms of when we release that capital out of our underlying investments.

Okay, that's great. And one more if I may --

When there's real opportunities, we'll release it into.

Yes. And just on transaction fees and underwrites and capital gains. What have you already booked for FY '24 where you're sitting here with today?

In terms of the unlisted healthcare opportunity, we only booked the proportion of the fee related to the amount of assets that were taken by Healthcare in Tranches 1 and 2. Tranche 3 has not been booked. So that's sort of sitting in that around '24. And then in terms of other transactional fees that are out there, I think there's obviously we're sitting on mark-to-market gains in terms of some of the underwriting positions that we put into HealthCo. We got asset recycling in the REITs and so forth. Probably the other one to call out is the Capital Partners fund. We haven't booked performance to a new one. So that performance fee comes up at the end of this financial year. We start the '24 year in a pretty strong position was good one-off clarity out there. That gives us confidence in making some of the statements we've made today, but we'll cap ourselves.

That's great. Can you provide a number for tranche 3 and potentially the performance fee for HMC Capital I as it stands today?

I won't provide a number, but what I'll say is you can just pro rata it and just look at what assets of the $1.2 billion were taken by HealthCo and what were not that will give you the answer [indiscernible] $4.7 million [indiscernible].

Your next question comes from David Pobucky with Macquarie.

David, Will and Misha, congratulations on the result. Just in terms of the $250 million of equity commitments from the 3 in-store investors a good result in this environment. You touched a bit on how the capital raising environment is looking. What's the feedback been like for investors? And how those sorts of conversations shifted over the last 6 months, please?

Well, you're research analyst, you'll be speaking to other companies. You can see what they're doing, not raising much money. We're raising money, and we're raising money because of the quality of the deal we did in putting that portfolio together. So the fact that we bought that on scope portfolio so well is what actually brought investors to the table. The fact that we've already written those assets up and you would have seen some of the beginning of that in the healthcare result last week was very interesting to investors. They kind of want to align themselves with a capital partner and a partner manager like ourselves that can find that mispriced opportunity out there. So that's why the capital is coming to us. It's also why funds just came into LML because of the embedded uplift in the Menai transaction. So I think most other managers will be struggling to raise capital in this environment. But we love tough markets because it gives us an opportunity to differentiate our business in our teams.

One for William. Just in terms of the utilization of historical tax losses, can you please remind me what the quantum of that in terms of what's remaining in the timeframe you'll get worked through, please?

Yes. So I guess in terms of assumption, we're still utilizing historical losses for the first half of FY '24, and we hope to provide a positive update at the half year results in terms of the go forward.

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

I just want to thank everyone for joining the call this morning and appreciate the interest. Thank you.

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