HMC Capital Limited (HMC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the HMC Capital Limited FY '25 Full Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to 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 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 and present and extend that respect to all aboriginal and Torres Straight Islander people today. With me on the call this morning, our Group CFO, Will McMicking; Gerard Dover, Head of Energy Transition; and Craig Schloeffel, Head of our Private Credit platform. I'll start the presentation on Slide 5 for an overview of our 2025 results. Financial year '25 was highlighted by exceptional deal generation and value creation for the HMC Group, which included ASX listing of DigiCo Infrastructure REIT establishing a global platform that will provide exposure to the fast-growing digital and AI opportunity. In private equity, the Landmark Sigma Chemist Warehouse merger underpinned an outstanding performance for our HMC CP Fund I. And in December, we announced the acquisition of the renewable energy portfolio Neoen Victoria on highly attractive terms, 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 during the period. The key financial highlights in financial year '25 included. Funds under management grew 47% in the year to $18.7 billion. Funds revenue of $234.2 million was primarily from recurring management fees, which translated into funds management EBITDA of $102.6 million for the year. And finally, pretax operating earnings of $0.56 per share were up over 51% from financial year '24 as we continued the trajectory in operating earnings growth since our IPO in 2019. I'd like to highlight that HMC made a prudent decision to write down the value of investment in DigiCo REIT, consistent with our other REITs versus the $5 IPO price we previously held the investment at. Absent this, our pretax operating earnings per share would have been in line with the $0.66 per share number we updated the market with back at the Macquarie conference in May. Our business today is well capitalized with no drawn debt and balance sheet liquidity increasing at calendar year-end to over $2 billion. It's important to acknowledge that despite the financial year '25 being a period of unprecedented growth in AUM and operating earnings, our share price has fallen sharply. The share price performance of HCW and DGT REITs have been disappointing, and our management teams are working hard to deliver improved operational outcomes for these entities. We're confident that over time, this will translate into earnings growth and share price strength. The financial year '25 reporting for our 3 listed entities, HDN HCW and DGT have now completed over the last week. Importantly, the HDN result last week demonstrated a strong and compelling outlook for the future. And we're sure that over time and over the next few years, and HCW will also enjoy similarly bright and exciting futures. As we move into financial year '26, our optimism and confidence in our outlook remains strong for the following reasons. Our 5 business verticals exposed to high-growth megatrends, which underpin their fundamental long-term demand drivers. The ongoing deployment opportunities across our platform remains strong, remain compelling on a 3- to 5-year horizon. Importantly, our recurring earnings base is solid underpinned by funds management and investment income. Our recurring operating EPS base as we move into financial year 26 is now $0.40 per share, which will provide more details around later in this morning's presentation. And finally, on Page 9, we'll detail our major focus areas for financial year 2016, areas where we will continue to operationalize the HMC platform for sustainable future growth. Remember, that 3 of our platforms, which are organically developed are less than 1 year old, and we're confident that with operational focus and intensity that will grow and flourish. Our ambition to grow AUM to $50 billion and beyond and recognize this journey may not be linear. It remains intact. However, financial year '25 may be a year where we deliver operational wins and laid the platform for sustainable future growth. I'll now turn to Slide 6. the economic flywheel. The flywheel today is much broader and deeper than it was when we first revealed it over 2 years ago. HMC today has multiple growth drivers and a more diversified business. As our balance sheet expands, so does our ability to proactively use it to accelerate our AUM growth. Examples in '25 where we utilized our balance sheet included the establishment of digital infrastructure vertical, where HMC used the balance sheet to assemble and underwrite the seed portfolio of assets ahead of the IPO. Another example included the $950 million acquisition of Neoen's Victorian renewable portfolio. Importantly, the ability to provide the vendor with the execution certainty enabled us to secure such an attractive valuation 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 73% 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 towards our stated 20% return on equity target. I'll move to Slide 7 of the presentation to discuss HMC's key capital deployment opportunities. Looking ahead, we see a clear pathway to grow AUM beyond $50 billion in the medium term. In real estate, HMC currently manages approximately $10 billion across retail last mile logistics and essential health care assets. We anticipate AUM growing forward. Going forward, will be largely driven by unlisted institutional capital. For example, our recently established HARP and HUG funds have embedded AUM growth of up to $2 billion over the next 2 years. We continue to develop new innovative unlisted institutional fund strategies, which are resonating with capital partners as we enter a more favorable interest rate environment. And in financial year '25, we grew our real estate unlisted institutional AUM by 17% and with deployment opportunities available, expect to maintain this level of growth trajectory for the medium term. In private equity, our HMC CP Fund I has built a 3-year track record of top quartile returns, which is critical in attracting new wholesale capital. Importantly, for this vertical, we are focused on maintaining market-leading performance and continuing to generate high return on equity through ongoing performance fees rather than absolute AUM growth. In digital infrastructure, which is a high-velocity growth story. Following the IPO of DigiCo, we have a $5 billion platform with a clear opportunity to double AUM through expansion projects like SYD1 and [ LAX1 ]. Our assets in Australia are strategic and high quality and will be open to capital and wholesale partnerships over the next 12 months once we deliver operational wins in development and leasing. And in private credit, AUM has grown beyond $2 billion since financial year-end, which represents 25% growth since the acquisition of Patent Capital in July 24. Our loan pipeline is healthy, and we recently wrote a $300 million loan, the largest in the business' history, which will flow into AUM in the first half of financial year '26. Our core fund is growing strongly with AUM almost doubling to just under $500 million over the last 12 months. The core fund is being positioned as an institutional grade product with the focus to grow wholesale and institutional mandates over the next few years. And finally, energy transition, the sector we recently entered is set to become a major contributor to AUM growth. Our $1 billion Neoen Victorian portfolio acquisition represents a large-scale and high-quality portfolio where we are currently basing institutional capital. Gerard Dover will provide more information on our progress shortly. As you can see from this slide, across every platform, the opportunity set is significant. We have the balance sheet strength, the growing investor relationships and the management depth to deliver our ambitions. I'd now like to move to Slide 8 to discuss how HMC is operationalizing each of our business verticals. Financial year '25 was not just about delivering record results. It was about seeing the foundations for the next phase of the HMC capital growth story. During the year, we invested substantial capital into 3 new verticals across private credit, digital and energy transition. We believe we have taken calculated risks to introduce these verticals at points in time that presented to acquire seed or foundation assets and businesses at attractive entry points. Financial year '26 will now be about proving that we can operationalize these new verticals and continue to continuously improve our business model to achieve long-term sustainable growth. We've been deliberate in strengthening our leadership across every vertical, ensuring we have the right operational expertise to execute our strategy at scale, remain rigorous in ensuring that operational delivery and excellence are important to the HMC group. In real estate, we have appointed a new CFO, [ Philip Duly ], Former Head of Finance at Woolworths Real Estate division, who brings deep operational and capital allocation experience. Philip will become a senior business partner to Sid Sharma and help leverage and scale our platform. Across health care, our focus is primarily around the ongoing operations of our 11 freehold hospitals. Our team has worked tirelessly over the last 12 months to manage this situation and ensure that we preserve long-term value on beer. As reported at the HCW result last Friday, we are now advanced on long-form conditional lease agreements with over 11 hospitals with the 11 hospitals with alternative operators. In private equity, we have over the first half of this year, reviewed and analyzed as part of our business carefully. The success of our strategy to date has been driven by a small number of focused opportunities where we've been able to roll up our sleeves and really impact change at our portfolio companies. Examples have included Sigma, Ingenia and more recently, Baby Bunting. Following a restructure of the AMCC Fund 1 earlier this year, we've narrowed our focus for the fund to pursue a smaller number of higher conviction opportunities. This HMCCP Fund I investment strategy works and really plays to the strength and capabilities of the HMC group. We are currently in market recruiting additional and experienced private equity executives to be able to further enhance and amplify this strategy. In private credit, over the last 12 months, we have embedded new credit and risk frameworks and bolstered governance as we scale. This includes onboarding senior risk leaders from major banks and enhancing our in-house valuation and project monitoring capability. These steps ensure we can deploy more capital into larger-scale loan opportunities while maintaining credit quality of the book. In digital infrastructure. Since the establishment of this vertical, we've been encouraged by the significant growth in our new business leasing pipeline, which on an unweighted basis is now 3 to 4x greater for the Australian business than we assumed in our acquisition case. Key changes made to bolster and focus the business have included. Chris Mark has also assumed the role of CEO, DigiCo. Damon Reid has moved to COO of Australian Operations. We've had the appointment of new heads of sales, commercial and major projects across the Australian business, reflecting the scale of the opportunities in the immediate 12 to 24 months. The SYD1 expansion project is now underway and will deliver 9 megawatts of liquid cool capacity in financial year '26, our capability, very few operators in the Australian market can offer. We also welcomed the recent HCF strategic status awarded by the Department of Home Affairs for CET1, which was an important milestone in bringing this asset back into the mainstream for major digital deployments. At an energy transition, we've integrated the newly acquired Neoen Victorian portfolio into our existing store energy platform. We now have a 20-person executive team in place led by Gerard Dover, positioning us to capture opportunities across the full renewable energy and storage value chain. Now moving to Slide 9, where I'll discuss our business model, which continues to create value for our shareholders. At the core of our model is a disciplined approach to capital management. We target 0 permanent core debt to ensure maximum financial flexibility, with over $675 million of corporate debt facilities, which we also used to underwrite new investments and seed HMC managed funds. Our low payout ratio allows us to reinvest excess cash flow into existing investments and new strategies, supporting compounding growth. From an earnings perspective, we have multiple value drivers recurrent funds management EBITDA and valuation growth in our investments. Across both, we target returns on average of 10% per annum, underpinned by scalable strategies in digital infrastructure energy transition, real estate, private equity and private credit, all of which are aligned to long-term mega trends. You'll note that at the bottom of Slide 7, we've endeavored to summarize how we are thinking about our 5 key business verticals today. Real estate, private equity and private credit are now consistently delivering strong recurring earnings for the HMC Group from funds management and investment income. In financial year '25, private equity exceeded its 20% return on invested capital target. Private credit is tracking in the mid-teens and expect it to trend to 20% return on invested capital as we grow AUM. And real estate, we'll get there through continued growth in AUM from institution -- unlisted institutional funds and some modest capital recycling. Digital infrastructure, we're primarily focused on operational delivery across our Australian platform and LAX1. Once this is delivered, return on invested capital will lift as we introduce new capital partnerships. Let's remember that digital has been part of the HMC group now at just over 6 months. And in energy transition, we'll today provide a detailed update on the business and our progress on fundraising, which will be a key milestone to delivering our return on invested capital targets. I'd now like to move to the Funds Management section of today's presentation. On Slide 11, we provide an update on 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 a 51% compound annual growth rate despite navigating through one of the most challenging interest rate hiking cycles in history. Financial year '25, Real Estate generated approximately $80 million of high-quality recurring funds management revenues. Divisional return on invested capital has improved materially over the past 12 months which we expect to continue trending towards 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 high-performing operational teams. We deployed the remainder of dry powder of our $1.25 billion last mile logistics fund in financial year '25. The fund now holds a high-quality portfolio of daily needs and last mile logistics assets with $140 million of embedded development opportunities to enhance income and capital values over the medium term. We also launched 2 new unlisted daily needs retail funds, the HMC Unlisted Grocery fund, HUG, and the HMC Australian Retail Partnership, HARP, with more than $1 billion in combined seed equity commitments from major domestic institutions. The HUG fund focuses on nondiscretionary supermarket-anchored assets in metropolitan growth corridors, while HARP targets high-quality convenience retail and development potential. Importantly, with both of these funds, there is over $2 billion of embedded AUM growth as dry powder is deployed into investment opportunities over the next 2 years. We continue to progress on capital raising to the $1 billion to $1.5 billion HMC Capital Unlisted Urban Retail fund, HURF, which we spoke about in February. We now expect this fund to be launched in the first half of financial year '26 and a strategy of acquiring large-scale subregional and regional assets. We look forward to updating you on this strategy in the coming months. Looking ahead, we're 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. Private equity continues to be one of HMC's standout performers, highlighting our ability to deliver uncorrelated, high-conviction returns. In financial year '25, HMCCP Fund I delivered a net returns of 43.6%, which translated into a $25 million performance fee for the HMC Group. Since inception, the fund has returned nearly 30% per annum, net of fees materially outperforming the ASX 300 by more than 18% per year. These returns are the product of our active ownership model. We take influential stakes in listed companies, work closely with management teams and Boards and drive strategic change that unlocks shareholder value. from optimizing capital allocation to executing transformative portfolio restructures. This approach has been validated externally with HMCCP Fund I ranked #1 by Morningstar as the top-performing Australian equities fund in calendar year '24. We see significant upside remaining in the current portfolio of 5 positions, and we continue to focus our time and capital where the potential for value creation is highest. Following the exit from Seed Investment Sigma Healthcare, which generated an unlevered IRR for the fund in excess of 100% and HMCCP Fund I paid a $300 million dividend in April '25 for investors who supported the fund at inception, which represents a dividend of 80% of their initial investment in less than 3 years. Looking ahead, we will continue to focus on situations where our active ownership model can unlock significant value while selectively pursuing co-investment opportunities to broaden the platform scale and earnings contribution. HMCCP is off to a solid start in financial year '26 with the August month-to-date performance strong, and we remain confident in our ability to achieve our 15% target for the year. In addition, HMCCP is currently sitting at approximately 25% cash, which positions the fund well to deploy into compelling new opportunities in financial year '26, which are currently under evaluation. I'll now move to Slide 13. I to talk about digital infrastructure. Our focus for this vertical in financial year 2016 is to make sure we operationally deliver against our business plan objectives for DigiCo REIT. We need to deliver 4 things: one, HCF award. We were pleased to announce in the last 10 days that Sydney 1 data center was formally certified by the Department of Home Affairs as a certified strategic hosting provider of data services. Certified strategic status is the highest level of assurance under the Australian government hosting certification framework. This was an important milestone in unlocking the value in the SYD1 asset and further validates HMC's conviction in the DGT investment story. Two, expansion and upgrade. The SYD1 expansion, delivering 9 megawatts of liquid-cooled IT capacity in financial year '26 is one of only a handful of projects in Australia capable of meeting the unique power density and cooling requirements of future AI workloads. Three, leasing momentum. Leasing velocity has accelerated following HCF certification at SYD1, and we're seeing strong interest from hyperscale cloud, enterprise and government customers. And four, capital partnerships. Beyond Australia, we're exploring capital partnerships to expand our footprint in the U.S. a major market where we already have a high-quality presence through StratCap. This platform has all the hallmarks of the future $10 billion AUM business for HMC and we're investing accordingly to capture the future opportunity. We need to stay focused on execution and with patients this vertical will deliver. Moving now to Slide 14, where I'll pass over to Craig Schloeffel to discuss private credit.

Thanks, David. Our private credit platform, now branded HMC Private Credit is rapidly emerging as one of Australia's leading nonbank lenders. In FY '25, AUM grew to date now by circa 25% driven by strong inflows into our flagship core fund, which has now doubled in size since we acquired Payton. We've also expanded our lending pipeline to approximately $3 billion reflecting growing borrower demand for flexible, relationship-driven funding solutions that the banks are increasingly unable to provide. We've made substantial investments in origination capability opening new offices in key states and hiring senior lenders with deep sector and regional relationships. At the same time, we've bolstered governance with the appointment of a new Head of Credit and Risk, the integration of experienced former valuers and quantity surveys into our assessment process and the establishment of market-leading transparency and reporting standards. Under the guidance of Matt Lancaster, Chair of the HMC Private Credit platform we've seen uplift across our risk and compliance, provisioning, valuation policy and procedures to ensure we're meeting institutional grade expectations. We've implemented active provisioning within the CRE pool funds as a prudent measure to institutionalize the fund offering. We are now well positioned to grow this platform as investor appetite for Australian private credit remains strong, including the recent additions to the Corporate and Asset Finance business, who are quickly building out a pipeline of opportunities. Over the medium term, we see the potential to scale this platform several times over, while maintaining disciplined credit quality and risk-adjusted returns. I now turn to Slide 15. This snapshot of the platform, I'd like to highlight the strong growth in AUM over time, which is reflective of both the growing private credit market in Australia but also the investor interest in our key offering of middle market residential commercial real estate debt. The central graph highlights the stable nature of the returns of our flagship first mortgage fund the HMC Capital Private Credit Core Fund. This stable return profile is also more broadly reflective of the stable nature of the first mortgage offering that much of our business represents reflecting the steady returns delivered in the middle market residential CRE private credit mark over time. As David mentioned, this core fund has doubled in FUM since acquisition of the patent business by HMC Capital, driven largely by the attractive stable returns paired with the diversity of the full spectrum of residential assets, diversity of location, borrower and geography. We expect this growth to continue as we further expand capital raising into the wholesale platforms domestically and institutional investors, both offshore and locally. The undersupply of residential housing nationally underpins the opportunity for origination as the market looks to meet the demand. With offices in 5 locations across 4 key states, we feel we are well positioned to capitalize on the opportunity and deliver attractive risk-adjusted returns well into the future. I now pass to Gerard Dover to discuss energy transition on Slide 16.

Thanks, Craig. Moving to Slide 16 on the energy transition platform. In just 18 months since launching the energy transition platform has grown into a $1 billion operating portfolio with a 5.5 gigawatt development pipeline. One of the largest renewable portfolio portfolios of its kind in Australia. The acquisition of Neoen's Victorian portfolio is transformational. For operational renewable generation assets totaling 652 megawatts and establishes HMC in the top 10 in the Australian national energy market. The FY '25 EBITDA was $64 million. These earnings are underpinned with 85% contracted capacity, and this strong operating cash flow supported the nonrecourse senior and mezzanine facilities, which have been secured on market-leading terms. We have already brought both the assets and the teams together into a consolidated platform. The final point I'll mention on this slide is the compelling acquisition price we were able to secure the Neoen Victorian assets for. This was achieved in part due to being able to provide high execution certainty in an event-driven situation. The acquisition price represents a 15% discount to replacement cost for the operating assets and around a 20% discount to recent transaction comparables to the operating assets. And this is assuming 0 value for the high-quality pipeline of approximately 2.8 gigawatts of wind and battery assets. Slide 17 provides an update on our fundraising. The energy transition platform is now focused on delivering value from the existing operating assets and the current development pipeline. Our goal is to raise approximately $1 billion of equity. Combined with a prudent level of debt financing, this is enough to fund the seed assets in full, progressed 2 of the near-term developments into construction and take the rest of the pipeline to financial investment decision. The fund will be structured as a 7-year closed-ended vehicle targeting returns of 15% to 20% IRR. We believe this strikes the right balance for institutional investors strong returns underpinned by quality assets and a clear pathway for growth. To support the fundraising process, we appointed Campbell Lutyens, one of the world's leading advisers in this space. Since their appointment, they've undertaken a detailed market sounding process and provided us with valuable feedback on the right structure for our fundraise. The feedback from global investors has been very encouraging. There is strong recognition that Australia represents one of the most attractive markets worldwide for renewable energy investment. The fundamentals are compelling. We have growing demand, abundant natural resources and a supportive and stable regulatory framework. Importantly, investors see real strength in the seed portfolio we've secured through the Neoen acquisition and store energy. These are high-quality, large-scale assets with a solid operational core and attractive near-term growth opportunities. As I've just mentioned, the Neoen portfolio was acquired at a material discount to market comparables. With an independent draft valuation of more than $1.3 billion, this creates a highly compelling entry point for new investors. Beyond the initial portfolio, our pipeline is a real differentiator we have over 5.5 gigawatts of renewable projects across Eastern Australia, spanning both wind and battery energy storage. This scale, coupled with the quality of our management team, positions us exceptionally well to capture value as the energy transition accelerates. In summary, we are extremely well positioned to deliver an institutional grade platform in one of the world's most attractive renewable markets. This is a significant step in establishing HMC as a leader in energy transition investments. Moving now on to Slide 18 to discuss the platform team. Our strategy is to become a national champion in the renewable energy sector, supporting Australia's decarbonization goals while delivering attractive risk-adjusted returns for investors. We already have a high-caliber team with demonstrated capability and experience to execute on large complex renewable energy projects. We have now commenced our hiring process to bring in a further 15 team members over the next 12 months to supplement the engineering, project delivery, commercial and operational capabilities. With this team and an enviable portfolio of operating and development assets, I am confident in the capital raise and excited to deliver the growth.

Thanks, Gerard. Moving now to Slide 19 to discuss HMC Group's sustainability framework and the continued progress in implementing initiatives to create long-term value and positive community impact. In financial year '25, we achieved a 32% reduction in Scope 1 and Scope 2 emissions across our like-for-like real estate portfolio compared to our financial year '22 baseline. When factoring in the benefits of solar generation, embedded network allocations and energy efficiency certificates, the reduction rises to around 50%. We extended our solar rollout target, installing systems on 70% of feasible sites across our real estate portfolio. These investments not only reduce environmental impact but also improve the asset competitiveness and reduce tenant operating costs. Our social impact work continued through the HMC Capital Foundation with 9 grants awarded to charitable organizations and ongoing support for our national charity partner, Eat Up Australia. On governance, we achieved 63% gender diversity across -- amongst our independent Board positions, it's 33% across the whole organization and maintained an MSCI ESG rating of A. These results reflect our ambition to lead a to lead in ESG performance as our business continues to grow. I'll now hand over to Will McMicking discuss our financial results.

Thanks, David. And turning now to Slide 21. HMC recorded pretax operating earnings for FY '25 of $225 million or $0.56 per share. Management fee revenue increased to $147 million, which was driven by the AUM growth across the group, including the new private credit and digital infrastructure funds. Performance and other fee revenue increased to $87 million, which included the capital partner funds annual performance fee and the DGT establishment fee recorded in the first half. Investment income of $159 million included $123 million contribution from the Capital Partners fund investment, with the balance being dividend income from fund co-investments. Employee and corporate expenses were influenced by the increase in AUM growth. HMC employees have increased from 86 at June 2024 to approximately 290 as of June 2025. Expenses also included a $32 million impairment on the carrying value of the DGT investment to align with DGT's June '25 NAV. Combined with an $8 million non-KMP employee retention grant, this resulted in a $40 million or $0.10 movement from the prior FY '25 trading update provided in May as detailed in the chart on this page. A final dividend of $0.06 per share has also been announced taking full year dividends to $0.12 per share. Turning now to Slide 22. This is a new slide to highlight the growing earnings base from our Funds Management divisions. Funds Management EBITDA was $102.6 million, which is a 160% increase versus FY '24. This was driven by contributions from the credit and digital divisions established during the financial year. Turning now to Slide 23. This slide details a number of expenses included in the FY '25 operating earnings of $0.56 per share that are nonrecurring in nature and totaled $18 million or $0.05 per share. Nonrecurring items comprised the $8 million one-off retention grant to non-KMP employees and a $10 million restructure of the StratCap USA business to rightsize its cost base following HMC's acquisition in the first half. Moving now to the balance sheet on Slide 24. HMC finished the financial year with net tangible assets of $1.3 billion or $3.24 per share after adjusting for goodwill. The reduction in NTA per share reflects the DGT impairment, as mentioned earlier, to rebase the carrying value of our co-investments to their respective funds NTA. We have also outlined a fund-by-fund co-investment summary on Page 32. HMC has no drawn debt as at June 2025, which positions the group well to continue growing its funds management businesses into FY '26, including energy transition. Turning now to Slide 25. As highlighted on the prior page, HMC has no drawn debt at June and combined with undrawn funding lines on our $675 million corporate facility provides net tangible assets and undrawn debt of $2 billion as at June 2025. We've also used this page to provide additional information on financing arrangements at HMC. HMC's gearing ratio covenant for its $675 million corporate facility is 50%, and is tested semiannually based on our reported financial statement, balance sheet assets, which are carried at their respective funds NTA. This means there is no daily mark-to-market pricing calculation on our corporate facility. I'll now hand it back to David.

Thanks, Will. In closing, we'll provide an update on our outlook for the financial year '26. Financial year '25's results, demonstrated our diversified alternative asset management platform and our ability to deliver strong outcomes for investors and shareholders. Our record financial year '25 pretax operating earnings of $0.56 per share were positively impacted by the strong performance of our HMCCP fund. Looking forward into financial year '26, we see a shift in earnings composition with greater balance across our established divisions. We expect strong organic growth in recurring funds management income with real estate targeting a 15% year-on-year EBITDA growth, private credit targeting 20% year-on-year EBITDA growth. Private equity will likely return to a more normalized level of performance with a target of around 15% per annum. Importantly, our newer digital infrastructure and energy transition platforms are positioned to deliver similar growth rates once they are operationalized. On this basis, we are targeting pretax earnings of at least $0.40 per share in financial year '26. This represents a compound annual growth rate of 29% since financial year '20, reinforcing the scalability and durability of our business model. These earnings also include investment income from HMC's balance sheet co-investments, which equate to $3.24 per share of NTA as at June 25. Finally, our dividend guidance for financial year 2016 remains at $0.12 per share, consistent with our commitment to provide sustainable shareholder returns while reinvesting retained earnings into value-accretive growth opportunities. With our diversified platform, growing recurring income base and expanding suite of diversified strategies, we remain confident in our ability to deliver continued growth and value creation for our investors and shareholders. That ends this morning's presentation. And as you can see, financial year '25 resulted in a large diversification in the HMC Group, and we're excited as we look into financial year '26. I'll now hand back to the operator.

[Operator Instructions] The first question today comes from Tom Bodor from UBS. Tom, your line is open. If you'd like to ask your question. I move on to the next questioner. It's Simon Chan from Morgan Stanley.

David, in previous conversations, I think as recently as months ago, you made comments around how you see HMC being a business that could deliver recurring underlying earnings of $0.45 to $0.50 per share. Your guidance today is $0.40 or at least $0.40. Can you just give me an indication as to what's changed since we last spoke? Is it just simply because you have a bigger workforce, so you got to take that into account? Or yes, what's the $0.05 to $0.10 difference?

I think, Simon, we've been prudent in providing that number. I think Will touched on some one-off costs in the business that you'll see we've invested probably ahead of the curve on. The $0.40 a share is a buildup of our view on the various verticals and the assumptions that we've given you today. As is always the way, we like -- we're probably going to give you that target for the year ahead, but we're planning to beat it. So we're working hard. We've got a lot of different options. There's a lot of things we can see ahead of us, but we've really come out with that as a baseline to start the year.

Can you also give me some insights into inflows, outflows at Capital Partners I on after the big dividend payment a few months ago now. I think in your prepared remarks, you mentioned about it now has a 3-year track record et cetera? Just how is the foot going there?

Look, I think what we're suggesting there with Capital Partners I. We've got a lot of very loyal investors where we see the future growth opportunity there is to go to the direct investor market plus continuing to go into wholesale platforms. One of the big gating items to wholesale platforms was ratings and 3-year track record. Both of those have now been ticked. And so we're confident that we'll be in a strong position to essentially continued fund flow there. Ultimately, our focus around that strategy, as I said earlier, is to drive great returns great outcomes. We've got a lot of very happy investors there. And so we're going to really consolidate that and cash in on that in the back half of the year through some initiatives that we're undertaking around fundraising. Generally, what we've found is fundraising has really accelerated around that entity where we've gone out with event-led raising opportunities. As I said earlier, we're sitting on a lot of cash in that fund, 25% Watch this space. We've got some initiatives underway in the back half of the year to accelerate fundraising there.

And my final question just relates to energy transition. Can you outline for us what's changed in your pitch on raising that platform? I guess you had to go prior to 30th of June, right? And that probably didn't go according to plan. You're now having another crack albeit with a little bit more detail, there's going to be a 5- to 7-year close-ended fund. Like what's changed in your pitch to investors because you've already had a go?