HMC Capital Limited (HMC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the HMC Capital Limited FY '25 Half Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. David Di Pilla, Managing Director and Chief Executive Officer. Please go ahead.

Good morning, and thank you for joining today's call. Before we commence, HMC would like to acknowledge the traditional custodians of country throughout Australia and celebrate their diverse culture and connection to land, sea and community. We pay our respects to their elders past and present and extend that respect to all aboriginal and Torres Strait Islander people today. With me on the call this morning are Group CFO, Will McMicking; Angela Karl, Managing Director and Head of our Energy Transition platform; and Chris Maher, Executive Director, Digital Infrastructure. I've asked Angela and Chris to join us for today's presentation. They are leaders of 2 of our newest and most significant growth verticals, which they will speak to this morning. I'll start this morning's presentation on Slide 5 for an overview of our first half 2025 results. The 6-month period to 31 December 2025 was highlighted by exceptional deal generation and value creation for the HMC Group, which included: financial close of the Payton Credit (sic) [ Payton Capital ] acquisition on the 1st of July 2024, securing our entry into the private credit space; underwriting and ASX listing of DigiCo Infrastructure REIT, Australia's largest IPO in 6 years, to underpin our digital infrastructure ambitions. Our private equity team, we're pleased to see the landmark Sigma-Chemist Warehouse merger receive ACCC approval in November to continue their market-leading performance. And in December, we announced the acquisition of the renewable energy platform Neoen Victoria on highly attractive terms, which is a key seed asset for our energy transition platform. As a result of this activity, we were able to deliver record AUM and operating earnings growth for the period. The key financial highlights on the page include: our funds under management grew during the half by 45% to $18.5 billion. Total revenue of $272.3 million was up by 203%. Pleasingly, this growth in revenue came from high-quality and importantly, recurring funds management income, which grew by a similar 209% year-on-year to $126.5 million. Our business is now well capitalized with balance sheet liquidity increasing at calendar year-end to $1.9 billion. And finally, pretax operating earnings of $0.519 per share were up from $0.171 per share in the first half of financial year '24. And this continues the strong growth trajectory in operating earnings since our listing in 2019. Most importantly, we now move into financial year '25 with a much stronger recurring earnings base, underpinned by funds management and investment income. We estimate this annualized operating EPS base to be $0.45 to $0.50 per share. Combined with our track record of being able to identify and execute large complex transactions, we are confident in our ability to maintain our earnings growth momentum into the future. We are very proud of the significant progress HMC is making towards its objective to become Australia's leading alternative asset manager. The HMC team is building what we call a forever company, a company which has retained many loyal shareholders from day 1 while also building a broader institutional investor base as we keep delivering on our sustainable growth objectives. None of our achievements would be possible without great people. Our organization is built on a culture of ambition, accountability and high performance. I am pleased to note that during the just over a 5-year period as an ASX-listed company, we have retained great stability across our executive leadership team with minimal turnover. And as we grow, our ability to attract quality new talent continues to improve. You can probably appreciate, therefore, why the leadership team at HMC and I are so motivated and excited by the future. We're also today announcing our inaugural Investor Day for the group on the 3rd of April. The day will be a great opportunity for our divisional business leaders to showcase the group's exciting growth prospects. I now would like you to move to Slide 6 of the presentation, our economic flywheel. The flywheel is now much broader and deeper than it was when we first revealed it 2 years ago. HMC today has multiple growth drivers and a more diversified platform. As our balance sheet expands, so does our ability to proactively use it to accelerate our AUM growth. Examples of this in the first half of '25 where we utilized our balance sheet included the establishment of the $4 billion DigiCo Infrastructure REIT where HMC used its balance sheet to assemble and underwrite the seed portfolio assets ahead of the IPO. DigiCo is now the only ASX-listed owner, operator and developer of data centers in both Australia and the United States. Another example during the period included the $950 million acquisition of Neoen's Victorian renewable portfolio on deferred settlement terms to further seed HMCs energy transition platform. Importantly, the ability to provide the vendor with execution certainty enabled us to secure such an attractive opportunity. The scalability and success of our business model is demonstrated on the right-hand side of this slide. Since our IPO in 2019, HMC has grown AUM by 84% per annum whilst consistently growing operating EPS, improving the quality of our recurring income while maintaining a strong balance sheet with high levels of liquidity. We remain confident in driving our performance toward our stated 20% ROE target. I'll now move to Slide 7, where I'll discuss third-party capital raising across our platform. With all 5 business verticals now well established, we are seeing a significant increase in the momentum of third-party capital raising across institutional and wholesale sources. In real estate, we've worked tirelessly over 8 years now to establish ourselves as a market-leading manager, and this is now being noticed and rewarded by institutional capital. We are now well advanced on the following 3 new third-party institutional capital funds and mandates, which could total over $2.5 billion of potential deployment over the next 12 to 24 months. These include a new last mile logistics vintage, which has been launched via a mandate of up to $1 billion with a global multi-manager; a new $1 billion greenfield daily needs fund where our cornerstone investor is now IC approved, and we have 2 other investors in the final stages of IC approval over the coming months; and three, we are well progressed on establishing a new $1.5 billion urban retail fund alongside one of the world's largest pension funds. This strong growth has only been achieved due to the fact that our team, led by Sid Sharma, has continued to establish itself as the leading Australian daily needs, last mile logistics, retail, real estate, funds management platform. In energy transition, we are well progressed on our inaugural energy transition platform with multiple institutional investors now in advanced due diligence, with our target to reach first close for our $2 billion target fundraising before the end of financial year '25. We have appointed global placement agent Campbell Lutyens to commence marketing the platform globally in the second half of calendar year '25. We've got great confidence in this platform raising as we have secured the seed Neoen portfolio on attractive terms and have an experienced management team bringing decades of successful track record to the table. In digital infrastructure, having established our DigiCo Infrastructure REIT, we now have a unique owner, developer and manager model across Australia and the U.S. We're engaging with multiple institutional investors regarding our U.S. owner-developer model. In addition, we are the external adviser to a publicly registered nontraded REIT that intends to continue to acquire digital infrastructure assets in the United States of America. The institutional and wholesale fundraising initiatives we have underway may partner with DigiCo REIT in the future to provide a more diversified, lower cost of capital over time. And in private equity, we are working with strategic and institutional capital to originate private equity transactions across our platform. Some of you may have noticed last week's media speculation around our interest in the Healthscope portfolio, which I will have more to say later in the presentation. In addition, we're continuing to build our wholesale team to be able to more broadly market and distribute our HMCCP fund across financial adviser channels. And finally, in private credit, we continue to work on a new $300 million to $500 million HMC Capital diversified credit fund either via a listed, LIT vehicle or wholesale capital product as a complementary funding source to the existing $500 million fund financing facilities, we've already secured from Goldman Sachs and UBS. Moving now to Slide 8 to discuss our fundraising distribution team. As I mentioned earlier, at the core of HMC Capital is a culture of ambition, accountability and high performance. To continue driving growth in AUM and accelerating the flywheel, we've assembled a market-leading team of fundraising and distribution professionals who demonstrate these qualities. We've made significant investment into this area of our business over the last 6 months, and we continue to invest in this strategically important area as we prepare for the next stage of growth across the institutional and wholesale capital platforms. Our institutional fundraising team is now led by Adam Baxter, who joins after a long career with Macquarie Asset Management, and Claire Van Schaik, who recently joined us after a long career at Lendlease. Nick Harris, who founded our institutional fundraising platform, remains in his role as Chairman. Our Australian wholesale team is led by Tim Koroknay, and he is supported by Craig Schloeffel, who through his success as Co-Head of Payton Capital, has built a strong and successful wholesale fundraising capability. And finally, through our U.S. business StratCap, we have the ability to raise wholesale and retail capital in the U.S. market. Our efforts here will initially be focused on our digital infrastructure business. These individuals have been tasked with showcasing HMC's market-leading performance to date and harnessing new capital to drive AUM towards $50 billion over the next 3 to 5 years. Moving now to Slide 10 to discuss our investment strategy. HMC's investment philosophy is built around 4 high-conviction megatrends we identified several years ago. These trends remain unchanged. They continue to provide a high level of focus in the long-term growth prospects of our underlying investments and portfolio companies. Importantly, this investment philosophy is consistent with our belief that businesses exposed to structural growth are well positioned to withstand market events, which occur from time to time. These are also the businesses best positioned to deliver long-term sustainable returns. It's probably a good time to pause and reflect on HMC as a manager of capital and our philosophy as an organization. We have great conviction in our business, and we take a long-term view in investing capital into areas supported by these megatrends. It's also opportune to touch on the ASX trading debut of DigiCo Infrastructure REIT. We're disappointed that DigiCo REIT is trading below its $5 per IPO price. However, has our conviction in the underlying digital megatrend diminished? Absolutely not. We are here to allocate and invest capital for sustainable long-term returns. Patient, long-term investors in DigiCo will be rewarded. This equally applies to -- in the health care space, where HCW is dealing with structural changes in the private health care sector. We believe once our tenant, Healthscope, is able to address sector funding pressure and its capital structure, the infrastructure-like characteristics of our assets will prevail in the long term for investors. I'll now move to Slide 11, where we'll discuss our divisional performance. I'll begin on Slide 11, discussing our real estate platform. Real estate is HMC's largest business today with approximately $10 billion in AUM across listed and unlisted funds. Since December 2020, HMC has been able to grow real estate AUM at 77% compound annual growth rate despite navigating through one of the most challenging interest rate hiking cycles in history. In the first half of financial year '25, real estate generated over $55 million of high-quality recurring funds management revenue. Divisional ROIC has improved materially over the past 6 months, which we expect to continue trending toward our 20% target over the medium term. The operational performance across our real estate platform has remained strong. This reflects the structural growth in our target sectors and our high-performing operational teams. I'm also pleased to update you today that the $1 billion last mile logistics fund is also now fully deployed following the acquisition of Roselands and Carlingford assets. As I mentioned earlier, HMC has also established 2 new retail fund strategies in early '25. These include a $1 billion HMC Capital unlisted greenfield fund focused on development opportunities of neighborhood centers in high-growth corridors. Four seed assets have been secured with 40% of the equity IC approved and committed and the remainder expected in the coming months. And $1 billion has been allocated to our HMC Capital Australian retail opportunities, HARP, as we call it, which is effectively the next vintage of our LML strategy. An initial approximately $100 million equity investment has been secured from a global multi-manager as part of the acquisition of Plumpton Marketplace. We're also well advanced with capital raising on a new $1 billion to $1.5 billion HMC Capital unlisted urban retail fund, HURF, as we call it. We expect this fund to be launched in the second half of financial year '25 with a strategy of acquiring large-scale subregional and regional retail assets. We look forward to updating you on this strategy in the coming months. Looking ahead, we are significantly more optimistic about the growth outlook for our real estate business as we move forward in a more favorable interest rate cycle. Moving now to Slide 12 to discuss our private equity vertical. Our private equity vertical, which was established just over 2 years ago, continues to be a major contributor to financial performance with $114 million of divisional revenue generated in the half, including management fees, performance fees and investment income. Since inception, the fund has generated a 38.4% annualized return to the end of January '25. That's 25.7% above the ASX 300 Accumulation Index. The fund, HMCCP Fund I, was also ranked as the top performing Australian equities fund in calendar year 2024 by Morningstar, delivering over 55% net returns during the year. This is a great endorsement of the strategy and investment process. Pleasingly, the fund has had a strong start to the second half of financial year '25 with outperformance being driven by positive trading updates from portfolio companies, including Sigma, Ingenia and Baby Bunting. We continue to see significant upside in each of the fund's existing investments and are currently screening for new opportunities. In order to further strengthen the investment resources in our HMC Capital Partners platform, Misha Mohl has moved into a director role focused on real estate investment opportunities in that portfolio. HMC is today also updating the market around our plan to establish a traditional private equity strategy. At this stage, our thinking is that this strategy is to be more transactionally focused. We will raise fund -- we'll raise capital from institutional wholesale and retail sources around specific situations. We believe the circumstances around Healthscope present an opportunity to investigate, establishing an HMC-sponsored consortium bid to acquire and recapitalize the business. The consortium, which is in the early stages of being assembled today includes key stakeholders from landlords, private institutional capital and experienced management team, private hospital operators and a group of leading financial and strategic advisers. Importantly, we are looking for a solution that seeks to maintain the Healthscope operating platform, avoids or minimizes hospital closures and maintains jobs. Importantly, in line with group policy, HMC has established information barriers between the private equity and real estate divisions to manage any potential conflicts of interest. Moving now to our private credit platform on Slide 13. Our Payton commercial real estate credit platform, which we settled on the 1st of July 2024, has now been fully integrated and is experiencing strong momentum with capital inflows and deployments driving 14% AUM growth during the first 6 months of financial year '25 or the equivalent of approximately 30% annualized growth. As at 31 December '24, we managed over $1.8 billion in private credit investments across commercial real estate and corporate and asset-based finance. Looking ahead, our commercial real estate deal pipeline has grown to over $3 billion, reflecting both increased activity and a growing average deal size. We continue to invest in both fundraising and origination capabilities, including opening 2 new offices on the Gold Coast and Perth in the first half of financial year '25 and making multiple senior origination appointments with a particular focus on New South Wales. In corporate and asset-based finance, we've onboarded a high-caliber team led by Adam Roberts-Thomson and Dane Weiss, both seasoned private credit executives. We've already completed our first $100 million corporate lending transaction in December '24 and have identified a promising deal pipeline of opportunities. These achievements demonstrate the progress we're making in building a leading and diversified private credit platform. We're confident in our team, our strategy and the significant growth opportunities that lie ahead. I'll now move to Slide 14 to discuss our focus on credit quality. Following the acquisition of Payton, we remained highly disciplined in our approach to new lending deployment and new dealer origination. Our focus remains on core middle-market residential real estate, and we maintain a cautious stance on under pressure real estate sectors such as office. Our loan book remains in a strong position with 92% senior secured loans and an average LVR of just 68%. Our focus on credit and risk management has been demonstrated through the implementation of strengthened risk and governance controls and investment into the capability of our team. Pleasingly, the private credit market in Australia continues to grow, meaning we can maintain these strong credit fundamentals while still achieving growth in AUM. We believe our investors are also well placed moving forward with rigorous credit assessment in place for new loans. And for pre-acquisition loans, we have specific indemnities in place and standard provisioning. I'd now like to hand over to Angela Karl to discuss our energy transition platform on Page 15.

Thanks, David. Our move into the energy transition sector reflects the significant level of investment required, both in Australia and globally, to achieve both decarbonization targets, as well as growing energy demand from the digitalization megatrend. Solid progress was made during the first half of financial year 2025, with HMC securing a majority ownership position in leading battery developer and owner StorEnergy in July, followed by the successful acquisition of Neoen's Victorian portfolio announced in December. In the Neoen Victoria acquisition, we have secured a top 10 operating position of wind, solar and battery assets in the Australian national energy market, together with a high-quality development pipeline focused on wind and battery assets and an accomplished development team. Our acquisition of the Neoen Victorian portfolio was an event-driven opportunity that showcase HMC's ability to move quickly in a complex situation, allowing us to secure a large-scale and high-quality clean energy platform that is a technologically diversified 652-megawatt operating portfolio with a very significant 2.8 gigawatt long-term development pipeline. The quality and scale of the Neoen platform acquired at an attractive acquisition price combined with the StorEnergy business and its large pipeline of utility-scale battery development presents a compelling opportunity for institutional capital partners to participate in our energy transition platform, which is managed by an experienced specialist team. During the first half year, we have also made significant investment into capability and future growth of the platform via our investment into StorEnergy. Key hires have been made throughout the period to strengthen engineering grid and development capability, and we also continue to make strong progress on near-term StorEnergy battery projects with 1.5 gigawatts on track and on budget for final investment decision within the next 2 years. Now turning to Slide 16 to discuss the progress made on platform capital raising. We remain on track to reach first close on our initial $2 billion plus fundraising in the second half of financial year 2025. The attractive deferred settlement terms we were able to negotiate on the $950 million Neoen acquisition means that the initial consideration is due in July and the remaining $200 million equity is due in December of this year. We have received a significant level of interest from domestic superannuation funds to be foundation investors in HMC's energy transition platform who are attractive to both the long-term energy transition fundamentals and HMC's capability. We are well advanced with multiple cornerstone investors and have appointed Campbell Lutyens as global placement agents. The final point I would like to highlight is the compelling acquisition price we were able to secure the Neoen Victorian assets for due to our speed and high execution certainty in an event-driven situation. Our acquisition price represents approximately a 15% discount to replacement cost for the operating assets and approximately a 20% discount to recent transaction comparables for operating assets. And that is all assuming 0 value for the high-quality pipeline of approximately 2,800 megawatts of wind and battery assets. Since HMC has transacted on the portfolio, strong progress has continued to be made by the Neoen development team on the development pipeline, including the Kentbruck wind farm being announced as a successful recipient of a federal government capacity investment scheme contract. It is the only wind farm in Victoria to have been awarded this. The quality of the seed asset portfolio, the attractive entry price metrics and the strong growth trajectory all position HMC well to reach first close on the energy transition platform by midyear. I'll now hand over to Chris Maher to discuss HMC's digital infrastructure platform on Page 17.

Thank you, Angela, and good morning. By way of introduction, I joined HMC Capital 5 months ago, and I'm leading the integration of the Australian digital infrastructure business and the HCF certification process for the Sydney 1 asset. I am also a Nonexecutive Director of the DigiCo Infrastructure REIT entity and previously held senior roles in the digital infrastructure sector, including with Telstra and Brookfield Asset Management. The first half of FY '25 was a landmark period for the HMC Capital digital infrastructure business. HMC now manages $5 billion of digital assets across Australia and the United States. On November '24, we announced the successful establishment and underwriting of the $4.3 billion DigiCo Infrastructure REIT IPO. DigiCo is now a global owner, operator and developer of hyperscale, enterprise and colocation data centers. The growth opportunity ahead at DigiCo is enormous with 238 megawatts of planned IT capacity, incorporating 76 megawatts of installed IT capacity that includes the Chicago 1 site, which is fully contracted and under construction, and 162 megawatts of future expansion IT capacity. Post listing, HMC increased its ownership in DigiCo REIT to circa 19%, highlighting our conviction in the sector and the growth outlook. Moving to Slide 18. DigiCo, as flagged in its IPO prospectus, is looking to explore capital partnerships across the platform. Discussions are underway with a number of capital partners globally, providing an opportunity to accelerate growth across the platform by crystallizing valuation gains and improving our cost of capital. We are also expecting to launch a U.S.-focused public nontraded REIT in the second half of FY '25. Existing assets across the platform together with pipeline assets currently under due diligence would form seed assets for future Australian and U.S.-focused operating and development funds. Turning to the DigiCo trading update on Slide 19. DigiCo's operating business is performing well with strong momentum. Trading to the end of January was in line with forecasts, and DigiCo reaffirms the prospectus pro forma adjusted EBITDA guidance of $97 million for FY '25 on an annualized basis. Upon completion of the Chicago 1 site, which was fully funded by the IPO proceeds, pro forma adjusted EBITDA on an annualized basis for FY '25 is expected to increase from $97 million to $163 million. The integration of the former Global Switch and iseek business is progressing well under the new DigiCo brand and expected to complete in the second half of FY '25. We see significant cross-sell opportunities and operating efficiencies across the acquired Australian businesses. We are drawing on the strengths of both businesses from a customer footprint, management expertise and operating perspective as we seek to build the leading data center platform in the country. We are also drawing on the experience of the HMC Group to drive leasing momentum and are implementing changes to ensure alignment with HMC's existing risk management, legal and compliance, investment committee and IT processes. We are systematically meeting with all the top hyperscaler and customer groups in the market, and we have had a strong response to date. Moving to Slide 20 and commenting on the Sydney 1 site. The Sydney 1 data center is the premier carrier hotel or colocation data center in Sydney. It is the only large-scale data center in the Sydney CBD with significant megawatt capacity growth potential. Since taking ownership, we are progressing the Sydney 1 asset through a major uplift program. We are focused on achieving HCF certification by mid-2025. We've appointed TELUS, the defense contractor, to uplift security, and we have strong engagement with government. The densification and upgrade program for the Sydney 1 site, which will lift capacity by 62 megawatts, is also progressing well. We are in the process of finalizing the 70% design. We have placed orders for long lead time equipment, and we'll be seeking tenders for contractors. The modular design for the upgrade program incorporates significant flexibility to meet customer requirements. The flexibility in the design, combined with the extensive redundancy that already exists at the Sydney 1 site and the experienced management team overseeing the upgrade means we are confident we can deliver the upgrade without disrupting existing customers. I'll now pass back to David to discuss HMC Capital's sustainability strategy on Slide 21.

Thanks, Chris. We continue to play an active role in the transition to a greener and low-carbon economy. HMC's energy transition platform has furthered its investment in StorEnergy, a battery platform, with an investment in Neoen's Victorian portfolio of renewable generation and storage. As a result, we now manage a renewable portfolio that consists of 652 megawatts of operating assets and 5.5 gigawatts of development. Our real estate platform continues to invest in building management efficiencies and solar generation, remaining committed to the zero net target -- carbon target in financial year '28. We continue to make positive community impacts through our social initiatives. The HMC Capital Foundation will be awarding 2 indigenous leaders scholarships for the 2025 academic year through the Monash University, William Cooper Institute. The HMC Capital Foundation also supported 2 other charitable organizations through calendar year '24, including Feel the Magic and Gotcha4Life. We're currently in the process of accepting submissions for further funding grants in financial year '25. Across our real estate platform, we've extended our national partnership with Eat Up to fund its 2024 evaluation report. The report aims to help the organization to measure the impact and identify additional opportunities in their work to feed hungry kids across Australia. We always strive to implement best practices in everything we do and are proud of the progress we're making. We're actively integrating this Australian sustainability reporting standards, ASRS, in preparation for future mandatory reporting by our relevant funds. HMC was reclassified to asset management and custody banks by MSCI and received a MSCI ESG rating of A for financial year '24 and '25. Over the course of calendar year '24, HMC Capital has transformed its group platform by the establishment and growth of new verticals in private credit, energy transition and digital infrastructure. These complement existing strategies in real estate and private equity. In order to ensure that the group's sustainability objectives remain appropriate and relevant, HMC Capital has commenced a new materiality assessment to review its targets and framework. Importantly, our philosophy will be to establish ourselves as a leader in sustainability by ensuring our carbon footprint for managed funds can be offset by the energy we generate by funds managed in our energy transition platform. This is due to be complete by the end of financial year '25. I'll now hand over to William McMicking to discuss our financial results.

Thanks, David. And turning now to Slide 23. HMC recorded pretax operating earnings for the half of $202 million or $0.52 per share. Management fee revenue increased to $126 million, which was driven by the AUM growth across the group, including the new private credit and digital infrastructure funds. Performance fees of $3 million were largely attributable to real estate APS1 and the U.S. StratCap digital fund. And a reminder that the performance fee for the capital partners fund is tested annually at 30 June, and hence, any revenue will contribute to the second half. The performance fee accrued by the fund for the 6 months to 31 December is $24 million and as at the 14th of Feb, had increased to $36 million. Investment income of $128 million was driven by $112 million contribution from the HMC Capital Partners fund investment. Expenses for the half are running below revenue growth with new fund investment and asset teams accounting for the main increase. An interim dividend of $0.06 per share has also been announced and is 100% franked. Moving now to the balance sheet on Slide 24. The HMC balance sheet's capacity to support new funds management activities was evidenced in the first half with the underwriting of seed assets for the DGT IPO, which completed its listing in December. Other key balance sheet movements in the first half reflected the investment into new fund strategies, private credit and energy transition. As at December, HMC's balance sheet recorded net tangible assets and undrawn debt of $1.9 billion and gearing at 7%. Turning now to Slide 25. HMC continues to take advantage of its increasing credit profile and lifted its funding lines to $675 million as at December. These debt lines provide valuable financing capacity to the group to support new funds management initiatives. I'll now hand it back to David.

Thanks, William. HMC is moving into the second half of financial year '25 with great momentum across our platform, underpinned by our strong reported H1 2025 operating EPS of $0.519 per share. Based on continued strong trading into February '25, annualized full year '25 operating pretax EPS is currently tracking at $0.80 per share. Importantly, as we look at our earnings composition for future periods, we will see the full year contribution of recurring funds management income from the private credit and digital infrastructure funds recently established. We believe baseline annualized recurring earnings are now running at between $0.45 to $0.50 per share. Combined with our track record of being able to identify and execute large complex transactions, we are confident in our ability to maintain our earnings growth momentum into the future. Our financial year '25 dividend guidance is $0.12 per share. This is consistent with our strategy to maintain the dividend at this level and reinvest retained earnings into value-accretive growth opportunities. I'd like to thank everyone for joining the call this morning, and I now hand it back to the operator for Q&A.

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

David, the first question relates to the $0.80 trading outlook. Last time you gave this trading outlook, I think it was $0.70 at the end of November. Just wondering what the delta is over the last couple of months. Is it more CP I driven? Or is it more fees associated with your -- with the success on the retail real estate platform? Or is it something else altogether?

No, I think you're probably right. Most of it is coming from the performance fees from CP I and underlying investment income that we're generating there.

Okay. Fair enough. Second question is just on Payton. You've had it for a number of months now, and I appreciate the update on Slide 13. But can you just, I guess, give us some details as to what changes has the team implemented I know you mentioned about the financing facilities, et cetera. But in terms of average ticket size, how has that tracked? And any -- in that pie chart on Slide 13, do you envisage that shifting towards some of the more smaller sectors over time?

No. I think on Slides 13 and 14, I think we have attempted to give you a bit of a snapshot for the changes we've made across the platform. Importantly, we do, within the Payton business, fully intend to stay focused on the core middle market residential real estate sector. We will potentially have the capacity to increase ticket size. I don't think we'll be going down in terms of ticket size, we'll be looking to increase. I think you'll recall that when we made the acquisition, we were sort of sitting at an average ticket size in the mid-teens. We'll probably look to increase that over time. So that will give us, obviously, AUM velocity and probably expose the business to probably better-quality borrowers and counterparties. The changes that we've made is we've really fully integrated the business within our risk management framework. We've redeveloped the investment committee process. We've hired a new head of credit from one of the domestic Aussie trading banks. And importantly, the legal and compliance function has been materially upgraded. So that's all come from the appointment of new executives and new team members. And what we're looking to do is institutionalize the standard of the business moving forward.

Great. Just my final question is on tax. I'm not sure if this one's more for Will. But the -- it looks like in the P&L, you guys are now 30% -- the tax rate is about 30%. Does that imply, one, this 30% will be the run rate going forward, i.e., you've pretty much [ shooed ] up all your tax losses, and two, have you then given thought to just provide trading outlook going forward on a post-tax EPS basis rather than a pretax EPS basis?

Yes, Simon. So there's still $150 million of tax losses that exist pre-IPO. We're still going through a process to work out the path forward. So I think for your forecasts, assume 30%, but there's still an option there that we'll update the market in time.

Your next question comes from Kane Hannan with Goldman Sachs.

Congratulations on the results. I just have 3 on DigiCo, if that's all right. Maybe just the [ Syd 1 ] leasing activity comments you made, obviously, discussions ongoing and encouraging. Just any more color you could provide around what's happening here, potential timing and size? I know we spoke back at the [ 2 up ], but just helpful if there's any updates there that's more detailed.

Chris, do you want to take that?

Thanks, Kane. Look, just a couple of comments. As I mentioned in my remarks, I mean, there's -- we've had very strong engagement with customer groups. So discussions continue. They're promising. Obviously, is as well known, there's a somewhat of a contingency around the HCF certification processes. I remarked that the discussions with government are very encouraging and promising. We're running hard at that process. And we're targeting mid-2025. We don't really have much more to say at this point other than very encouraging.

What I'd add to that, Kane, is literally, that business has been under the umbrella of the group for literally 2 months. Leasing activity had been frozen, what, for the best part of 5 years. We're going through a process of bringing the asset back into market. There's been a very proactive engagement strategy with all the major tenants in the market. And as Chris said in his remarks, the engagement from the counterparties has been very, very positive. So we remain very optimistic in terms of our ability to -- for that asset to ramp up its leasing over the next few years.

Yes. That's helpful. Just a comment in the slide as well around the U.S. development, sort of the 1 gigawatt pipeline. I don't think I've seen that before. Is that new land that you need to acquire? Just any sort of comments around where that 1 gigawatt pipeline is?

So I think what we're referencing there is really a range of different development opportunities that we identified at the time of the IPO. So you obviously had the asset in L.A. We are circling around some other opportunities in that market. There are a lot -- a range and a spectrum of opportunities. It can just be from virgin land to more advanced opportunities. But at this time, we're really just evaluating everything as it comes across our desk and looking more to take on some global institutional partners to pursue some of those higher growth opportunities as well as with DigiCo partnering. But again, as we said earlier, and we've given some pretty clear breadcrumbs there in the presentation this morning around our thinking on partnering, capital partnering, we've got a lot of partnering opportunities for DigiCo with both institutional capital and wholesale/retail sources in the U.S. market. So what we'll look to do is we'll hunt for the best cost of capital and the best funding partners we can for the REIT moving forward.

Yes. That makes sense. And just lastly, just on that capital partnering. Just the ranges of sort of asset ownership that you're talking to, the 50% to 75% with sort of 50% in the U.S., just a sense of what drives the range? Is that sort of deal by deal sort of what's been offered or how quickly some of these opportunities come up and then you'll need to be able to fund it? Just interested if you'd about that, please.

Look, I think what we'll be doing is we're playing a bit of a balancing act there. We're so optimistic in the Sydney asset, and we're so optimistic in our Aussie business that we'll probably -- we've had multiple inbound inquiries from very credible parties, both financial and strategic, since acquiring the asset. We need to just balance out the fact that we want to get some wins on the board. We want to get through that HCF process and then look to introduce some capital and realize what we believe to be probably the best asset in the country strategically in terms of the colo space. So we'll be patient there, but we know we've got the interest. We've got the demand coming at us pretty quickly. And then in the U.S., what we've got there is a different style of business. It's an owner developer type model. And what we're looking at there is that yield-type vehicle is quite a unique strategy in the United States. No one else is pursuing that. There'll be demand through our broker-dealer network to distribute wholesale and retail capital, but probably institutions are coming at us again saying, we don't get the opportunity to invest in this asset class and generate a yield. So we are pretty actively deploying quite a lot of resources into that market. Adam Baxter, our Head of Institutional Capital, with -- is focused in -- on that market and is based in New York. So Claire and Adam are pretty focused on taking a lot of inbound inquiry on that. We'll have more information to give the market around what we're thinking there in the coming months.

Your next question comes from James Druce with CLSA.

Just following on from the last question quickly. I mean that idea of sort of raising capital out of the U.S., that's using the existing StratCap network, I assume? Or is that broadening that out?

So it's a combination. StratCap had embedded within it, when we acquired the business, a U.S. broker-dealer. So what we've done is we've been through a pretty detailed process through the last 6 months to relaunch one of their funds. So that will be a U.S. NAV REIT, as we call it. It already has a couple -- has assets in it. And we'll be looking to introduce the market back into that asset. We've gone through a process where we've taken it from a nonpublic to a public NAV REIT, so that will obviously be a source of funding for yielding style assets. And then on the institutional side, Adam Baxter and Claire, who both are in our institutional part of our business, are really coordinating and harnessing a lot of global capital that wants to partner with us in regard to some of those assets. And so what we'll look to do is we'll look to parallel track those discussions over the next 6 months and really look to introduce that capital into both the existing assets we have and potentially realize some uplift in the valuations as well as help us fund future acquisitions and future growth.

Yes. Okay. That's clear. And maybe following from Simon's question on the $0.80. Can I just clarify a few things? Is that to December 31 to 17th of February, that guidance number that you provide out? And is there anything that you'd call out that it's not annualizing? Or is that annualizing that's lumpy from the first half?

So what I would say to you is take -- the way I think about it, and then Will probably explain it much better than I can. But I'll explain it in very simple terms. We reported $0.51 for the first half. That does not include the performance fees out of HMCCP, so you can add that in. And then what we talked about in the presentation this morning was a really, really material and very important point that I don't think anyone should go away from this call and not understand. Through the back half of last year, we bought private credit onto the platform. So now we have recurring income streams coming from private credit. We obviously brought DigiCo REIT to the market, and we obviously get recurring income streams from our digital business. And then next year, we'll obviously start to see our energy transition platform come through. However, just with the income streams from the core business we have today and the funds we have under management today, our core business run rate on an annualized basis is running at between $0.45 and $0.50 a share. Now what we're saying is if you divide that by 2, that will give you the half year contribution from management fees and investment income. So you add that to what we've reported. You add on top of that the performance fee we've talked about today. And then obviously, that gets you to the $0.80. We think that's a number that's achievable. It's very much now starting to move towards a very much a recurring annuity-based business. We set out with this objective 2 years ago. A lot of people said we couldn't do it. A lot of people said, when we reported the '24 result and we had $0.37, they said, only half of it is recurring. Well, guess what? Less than 8 months later, we've more than doubled that number. So we keep delivering. And as we've always said, we like to overpromise and overdeliver at HMC. And I think that's really starting to come through in the numbers.

Okay. That's very, very clear. And then one more, where do you think you can push the credit platform to in the second half?

James, I don't want to use that word push. We're not pushing. We're being very prudent. It's obviously a time in the market where being prudent is going to be important and will prevail. We're really institutionalizing that platform. We've got a great team of investment professionals there. I think you'll get to meet them at the Investor Day. The point and the message we're making, and this is really starting to come through in some of the internal materials that are being developed. The size of that market opportunity, it's growing, but it's really the fact that the domestic Aussie banks have had a disproportionate share of lending in Australia historically. If you look at what's transpired in the U.S., as private credit starts to become a bigger share of the pie, we just think naturally, the market will grow. The opportunities will grow as more players come into the market. That's positive, not negative because that means that these assets can be -- these loans can be refinanced amongst private credit providers. So we just feel as though the market momentum there with the right team and the right opportunities and the right risk controls in place puts us in a really strong position. Overlay on top of that one really unique thing. HMC's DNA, HMC's track record of being able to originate large complex transactions means that we'll be a leading player in this space because we will be able to become a solution provider to corporate Australia and asset-based opportunities in the future.

[Operator Instructions] Your next question comes from Tom Bodor with UBS.

David, I just wanted to pick up on that lending business and just ask a question about the corporate and asset-based finance. There's a mention of $100 million transaction there in December '24. Can you give a little bit of color around that transaction and what sort of returns or industry that was? I presume it's not real estate.

No, it actually was an asset-based real estate loan, Tom. The returns for -- it was a large-scale loan. It was more an opportunity originated through our corporate team. It really played into the DNA of the group. It was very much a repositioning story. It had been an asset that had been through a couple of hands over the last few years and been knocked around through COVID. So what we saw was very attractive risk-adjusted return for our underlying investor base. Sort of at an asset-level financing, it delivers about an 11% IRR for investors. And potentially, we've been able to -- we'll probably outperform that a little over the next couple of years as the assets reposition. So we feel that it was a really great opportunity to showcase the talent of our team and work on what was a complex repositioning asset.

So to be clear, though, does this sit outside of Payton or this is part of the Payton business?

It was originated by our corporate team and financed through the Payton platform using some of our wholesale lines.

Okay. Great. And then just on the energy transition fund raising, I'd just be interested in understanding what the return targets are from an investor perspective and also sort of how the fees in that platform compare to the rest of the HMC platform.

Look, I'm not going to get into speculation on that on this call at this time. But what we would say is that the investors that we're targeting for first close are domestic Aussie super funds. As we said earlier today that we'll look to bring Campbell Lutyens into the picture later in the year and obviously then take the fundraising global. These things are bespoke in terms of the fee arrangements that we would be looking to achieve. Fees will be linked to size of check, size of commitment. It will be a base management fee with a performance fee element to it. It will be a closed-end style structure, but really with a focus on building a business and building a platform -- so what we believe is if we get that right, you'll be talking about returns in the mid-teens.

Okay. Great. And then just one last question maybe for Will. Just would be interested in understanding where capital solutions sits in the P&L. Is it in the other income line?

You're spot on, Tom. So yes, approximately $15 million contribution for the first half from realized and fair value gains.

And I might -- Tom, on that, just in terms of capital solutions, we've just taken the decision with this result, given the 5 major verticals that we now have, to really incorporate solutions within the other parts of our business and really to represent the balance sheet-investing activities of the group rather than report it separately, but probably in the future. Don't want to get into the ins and outs of what we're doing on the balance sheet to excruciating level of detail as that business evolves.

Your next question comes from David Pobucky with Macquarie Group.

Maybe just the first one for Will on fees. Could you remind us again what HMC expects to be in the door on transaction fees and base management fees from DigiCo in FY '25? And did all the transaction fees fall in the first half, please?

Yes. I mean there was the establishment fee of approximately $60 million that fell into the first half. And then the assets are only there for about 2 weeks pre-December, so you'll see the usual 1% blended across the AUM for the second half.

Thanks, Will. And just going back to Payton Capital. Are you able to provide what the EBITDA contribution was for the half for that business? And where does AUM sit for Payton today?

So you'll see in the segment notes for the 4D, we now report earnings across the divisions. So the credit number that you see of $7 million, that's comprised of the CAF team and then the Payton business. So on a like-for-like, looking at Payton specifically, it's just under [ 10 ]. And as we called out in the presentation, there's been a lot of investment into revenue-generating personnel that we expect to see a high kick in the second half.

So just to add to that, the budget for the Payton business is second half back ended. The second point is we have materially increased investment in the business across the credit platform, being onboarding the CAF team. So they've got 4 new dedicated executives. We've increased some additional resource into Payton in terms of origination capability. We talked about opening a Gold Coast office. We've opened a Perth office. That's what's resulted in a $3 billion pipeline sitting here today. And so we're sort of thinking about that business as being a sort of run rate contributor to the group of $25 million to $30 million over the next little while. And then as it grows, we'll obviously see some velocity and momentum of that base. So what you'll see in the first half is really some front-ended costs stabilizing the risk and management platform. And then obviously, we expect to see it take off in subsequent periods.

And just the final one on your position in DigiCo, 19%, having increased that since the IPO. If you could please just talk to that move and your intentions, how you see them at the moment around that position over the next 12 to 24 months, please?

I think I said today, we're a very high-conviction investor. We're a long-term investor. We believe in the thematic. We took advantage of the sell-down prior to Christmas and took another 1% at what we believe to be pretty attractive levels. As we've always said, we like to co-invest in our vehicles. We like to demonstrate our support and our conviction through our equity positions. Longer term, all our capital across the group is always seeking great returns. At this stage, there's no intention -- we're subject to escrow there at DigiCo as well, but there's no intention to sell down. We've got such conviction in that business. We'll probably continue to hold that level of shareholding for the indefinite period, indefinite future.

Your next question comes from Richard Jones with JPMorgan.

Just on the energy transition fund, how much external equity do you expect to raise as part of the first close?

So I'd say to you that I think Angela, during the presentation, did talk about -- $950 million is the purchase price for Neoen. We've obviously got the Stor platform. So what we're looking to do is probably target a number for first close of somewhere around $400 million to $500 million being sufficient capital to settle those acquisitions and support those acquisitions, plus we'll make a co-investment of the HMC balance sheet of somewhere between $100 million to $200 million.

On top of that $400 million to $500 million external?

Yes. I don't want to put specific numbers on it, but that would be a target that we're sort of trying to aim for with a view to taking that up to $2 billion.

And then just the potential initiation fees, are they second half or an FY '26 realization?

For what?

The fund launch.

Which one? For capital part for energy transition?

Correct.

You would expect those fees to be coming through in next financial year, not this year.

Yes. Okay. And just one for Will. Just the $24 million performance fee provision you called out. Can you just clarify how that's treated in the accounts? It looks like there's an expense taken through the P&L.

Yes. So because it's consolidated on the balance sheet, it is there. But HMC does not recognize it in its earnings.

Okay. And does it impact the balance sheet?

I mean for noncontrolling interest, yes, but if you look at -- the balance sheet that we report is HMC's interest, so no.

Your next question comes from Ben Brayshaw with Barrenjoey.

David, just referenced your comments and Chris' earlier on the establishment of a U.S. nontraded REIT. Do you see there is a risk of potentially having an overlapping mandate with DGT? Or is the scale of the opportunity big enough for that not to be an issue?

We just think the scale of the market opportunity is so significant that trying to bring something to market in this space, as long as it's well thought through and it's complementary, what it will do is hopefully give DigiCo access to a partner with a pretty competitive cost of capital to help it take on some of the magnitude of the opportunity ahead of us. Really, no one is focused on that space in the U.S. We feel as though we've got first-mover advantage, and we're going to consolidate that first move advantage. We're going to take advantage of it, and we're going to be first to market across every platform we possibly can. The opportunity is massive.

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

I just want to thank everyone for joining the call this morning. Hopefully -- we're coming on to just over an hour in a bit in terms of the presentation this morning. I think we've been able to paint a picture of a much more sophisticated business, much larger scale than we had this time last year. And the team around me here in the room just remains incredibly motivated, excited by the future. And we look forward to catching up with our investors over the coming days. Thank you very much for joining the call.

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