Good day. Thank you for standing by. Welcome to Centuria Capital Group Half Year FY23 Results Presentation. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. John McBain, Joint CEO of Centuria Capital Group. Thank you. Please go ahead.
Good morning, and thank you for joining us. I'm John McBain, Joint Chief Executive of Centuria Capital. Together with my fellow Joint CEO, Jason Huljich, and Chief Financial Officer, Simon Holt, we have pleasure in presenting Centuria's 2023 financial year interim results. I will present an overview of the group, our 23 highlights and comments regarding strategy and outlook. Simon, the financial update, and Jason will present the real estate and funds management divisional update. Centuria pays its respects to the traditional owners of the land in Australia and New Zealand, to their respective cultures, and to their elders, past, present and emerging. Slide four provides an overview of the group and illustrates our increased scale and diversification throughout Australasia, with group assets under management increasing to AUD 21.2 billion during the period.
It also shows the breadth of our platform across listed funds, which have a 31% weighting and unlisted funds with a 66% weighting. Our unlisted real estate funds division is supported by a broad distribution network, but complemented by our institutional capital from partnerships and mandates. As our balance sheet has grown, we've taken key stakes in the Centuria REITs, our joint ventures and institutional mandates, as well as our open-ended unlisted funds. On slide five, despite global and domestic market uncertainty throughout the first half of FY23, Centuria has delivered Operating Earnings Per Security of AUD 0.074. Noting that full year OEPS guidance remains at AUD 0.145. In line with FY22, which was previously a record half year earnings result for the group.
Our FY23 distribution per security of AUD 0.058 was provided, again, noting that full year distribution guidance remains AUD 0.116, up 5.5% from FY22. Centuria continues to deliver high recurring revenues, 91% of total revenues, as well as consistent access to embedded performance fees. Though interest rates have increased from emergency levels, we understand the cyclical nature of markets and the benefits of executing long-term strategies to deliver sustainable recurring returns. We maintain a disciplined approach to capital management and are focused on pursuing operational success, leveraging our in-house management capability, diverse distribution networks, and growth strategies to deliver value for C&I security holders and the underlying investors across our platform.
To this end, Centuria's transactional activity during FY23 included AUD 1 billion of gross real estate activity, largely the combination of unlocking opportunities across alternative real estate sectors and value-add or co-countercyclical opportunities within our long-standing traditional markets. This is complemented by a strong development pipeline of AUD 1.7 billion. Moving to slide six. Centuria continues to benefit from organic growth resulting from real estate funds management, development, and our expanding Centuria Bass Credit real estate. Most significantly, our unlisted platform benefited from strong expansion, predominantly within the alternative real estate sectors. We have a focus on the agricultural real estate within our open-ended Centuria Agriculture Fund, or CAF, growing to AUD 250 million AUM within six months. Real estate credit funds, with Centuria Bass Credit growing its loan book to more than AUD 1.1 billion.
During the half, we settled the acquisition of a 50% interest in the AUD 220 million Allendale Square building in WA. This was acquired by direct wholesale investors in an unlisted fund. We also captured value add opportunities across the office and industrial sectors. The latter reflected in the Centuria Industrial REIT's partnership with an investment vehicle sponsored by Morgan Stanley Real Estate Investing, known as Centuria Prime Logistics Partnership. This joint venture is indicative of our institutional capital base expansion. Slide seven outlines Centuria's continued focus on its sustainability framework.
During the period, we published our second sustainability report, continued to target a minimum five-star green rating in the development projects sponsored by Centuria REITs, continued our ongoing solar installation across office and industrial assets in partnership with tenants, improved diversity at 45% female workforce representation, and released our supplier code of conduct outlining the minimum standards we require from suppliers and contractors. I will now hand you over to our CFO, Simon Holt, who will take you through our financial results.
Thanks, John. Slide nine shows our operating earnings and distributions for the half year, as well as guidance for the full FY23 financial year. Today, we reported the group delivered HY23 statutory net profit after tax of AUD 74.3 million, with operating NPAT of AUD 58.5 million. This is a robust performance considering market conditions and increased funding costs. This demonstrates our resilience and quality of assets under management, as well as the continued diversification of the portfolio. This has translated to an operating EPS of AUD 0.074 per security for the half year, which matched our record performance in the comparative period. Our confidence in the quality of earnings underpins the distribution for staple security, which has increased to AUD 0.058 for this half and remains aligned with FY23 guidance.
As such, I'm pleased to reiterate John's earlier statement that our FY23 guidance remains at AUD 0.145 per security. Our distribution guidance, which has been reaffirmed, is AUD 0.116 per staple security, representing an increase of 5.4% compared with the prior year. Moving to Slide 10, which outlines the key components of our earnings. Profit attributable to our property funds management segment was slightly above half year 2022. Despite transaction fee income decreasing by AUD 9 million, the group saw sustained growth in management fee income, up 20% from the half year last year. Performance fees of AUD 14.6 million were recognized in the half, which is in line with our expectations.
It's important to note that the group has an additional $162 million of latent unrecognized performance fees, which are expected to emerge based on the maturity profile and life cycle of the underlying funds. As an external fund manager, Centuria continues to co-invest alongside its investors, which brings alignment as well as continued source of recurring revenue. The group's co-investment segment yield an operating profit of $26 million, up 16% from the prior period. This reflects the deployment of additional capital in support of new unlisted funds, as well as warehousing of re-revenue-generating seed assets for planned future funds. It is important to note that this planned usage of the group's latent balance sheet strength, which has been accumulated over the years, will allow our business greater flexibility in supporting the establishment of future unlisted funds in an otherwise uncertain market.
Moving on to the development segment. Operating profit from this segment doubled to $5.7 million for the period. The group has been strategically developing assets to seed and expand our property funds. The development segment's current $1.7 billion pipeline comprises of ongoing and upcoming known projects, which will continue to be a source of profitability and growth for the business. The property and development finance business segment represents the group's 50% interest in Centuria VAF Capital, which has contributed $3.8 million to the operating earnings of the group for the half year, and is up 100% from this time last year. Centuria VAF's performance has pleasingly exceeded budget, benefiting from continued AUM growth, conducive market conditions, investor appetite, and Centuria's property and distribution expertise.
In the investment bond segment, the transition of our capital guaranteed product into more contemporary unitized offering will improve returns for our policy holders, as well as increase margins for our investment bond division over time. This transition has led to a one-off recruitment of management fee rebates in the prior period, resulting in the higher noted profitability in the comparative period. Moving on to the corporate segment. Corporate costs decreased from AUD 10.2 million to AUD 7.7 million in this half. The decrease is result of a AUD 2 million repayment of JobKeeper in the prior period, with cost management initiatives during the current period accounting for the remaining cost savings.
It's pleasing to note the continued decrease in normalized corporate expenses as a percentage of divisional operating profit before interest and tax, which has declined from 15% in FY21 to 8% in HY23. This reflects emerging efficiency and cost savings associated with increase in size and scale of operations. Finance costs increased to AUD 15.6 million in the current period, reflecting an AUD 150 million net increase in average borrowings, combined with the impact of higher interest rates throughout the period. The decrease in operating tax expense from AUD 12.8 million for the half to AUD 10 million in the current period is the result of interest deductions arising from higher average cross-stapled loan balance within our stapled structure. Turning to slide 11.
It is important to highlight that our ability to continue generating recurring transaction fee incomes stems from the diversification of our real estate platform. Transactional activity amounted to AUD 1.7 billion and undertaken by the group, have contributed AUD 14.7 million of transactional fee income to recurring revenues for the half. This included AUD 369 million of acquisitions exchanged in FY22 and settled in this half, and AUD 395 million of divestments. A billion dollars of new gross real estate activities were completed this half, comprising AUD 660 million of property acquisitions and AUD 349 million of real estate finance loans.
Looking at slide 12, we are pleased to report that the group's balance sheet has continued to strengthen, with the net asset value per security increasing from AUD 1.73 at 30 June 2022 to AUD 1.79 at the end of the half year. Based on yesterday's share price for SIF and COF, our net asset value would further improve to AUD 1.87. The group has immediate access to available funding of AUD 250 million, comprised of AUD 116 million of cash reserves and AUD 132 million of undrawn debt. This funding provides the group with capacity to explore and execute on future growth initiatives and provide continued balance sheet support for our growing unlisted business.
In addition, the group has also secured a new debt facility of $50 million with a five-year term, enabling the refinancing of near-term maturities. The group's operating gearing ratio has increased from 13.2% at the end of FY22 to 17.3%, or if using SIF and COF to yesterday's closing share price, would be 16.8%. This increase reflects the already mentioned deployment of additional capital in support of our unlisted funds and warehousing of new assets. Our interest cover ratio has also decreased from 6.8x - 5.4x compared to the FY22 as a result of increased interest rates despite static operating earnings.
Centuria's balance sheet continues to be well-positioned to capitalize on future growth opportunities and benefit from increased funding optionality, access to new debt instruments, along with ample headroom to debt covenants. Moving on to slide 13, which highlights the key attributes and profile of debt across the platform. We've continued to diversify our exposure amongst our pool of 21 lenders with favorable outcomes for the financing of our funds and broader risk mitigation. From the AUD 8.2 billion of debt facilities, the platform has a weighted average debt duration of 2.4 years, which is mostly representative of both the nature and maturity of our unlisted funds platform. We will continue to rotate capital amongst our lenders and extend duration where it makes sense and is aligned to the funds' maturities and asset strategies.
The group has hedged across these funds to a weighted average of 48% with a weighted average duration of 1.9 years, which is broadly aligned with our debt duration and in line with our policy of not hedging beyond the debt duration of a fund. As a result of the significant disparity over the past 12 months between the market interest rate curve and market consensus of the RBA cash rate, we have continued to maintain our flexible approach to managing hedging profiles across the group after considering investors hedging appetite. This has resulted in our weighted average duration shortening in this period. I'll now hand over to Jason, who'll take you through C&I divisional highlights.
Thank you, Simon. Good morning. Let's move to slide 15, which illustrates the breadth of Centuria's seven diversified real estate verticals. I'd like to start with the alternative sectors that we invest in. During the half, we focused on expanding our agricultural portfolio, which increased 20% during the six-month period. These acquisitions were predominantly transacted by our unlisted open-ended Centuria Agriculture Fund. Centuria presently now owns 25% of large-scale Australian glasshouse infrastructure. Banks have further tightened their lending criteria, driving strong demand for non-bank finance from the property sector. Our unlisted real estate credit funds increased to more than AUD 1.1 billion over the period, and we believe this division will continue to benefit from strong tailwinds within the second half of FY23. The healthcare portfolio continues to benefit from strong occupied demands for specialized assets, including newly constructed properties.
This vertical increased to over AUD 1.7 billion in AUM. Moving to more traditional real estate asset classes, the daily needs retail and large format retail portfolios continue to perform well, with AUD 1.8 billion and AUD 1.6 billion, respectively. Our industrial portfolio continued to harness strong sector tailwinds with extremely limited vacancy nationwide. This sector accounts for more than AUD 6 billion of Centuria's AUM. Finally, contrary to anecdotal speculation about the impact flexible working may have on the office sector, our office AUM increased to AUD 7.5 billion throughout the period. Slide 16. Slide 16 illustrates Centuria's diversified AUD 20.4 billion real estate platform and fund structures across our seven verticals, which range from single and multi-asset closed funds, open-ended unlisted funds, listed REITs, and unlisted institutional partnerships.
These fund types are intentionally tailored to various investor profiles to suit different risk-reward appetites, be they retail or wholesale investors, as well as domestic and international institutions. The group benefits from broad investor distribution networks following the integration of a number of management platforms. The table identifies a number of potential growth opportunities, where there are gaps in our product offering or smaller portfolios that can be scaled up. Moving to slide 17, which outlines Centuria's ability to effectively manage assets within our portfolios. With a strong in-house team, we're at the coalface of tenant relations and leasing opportunities for our assets. The group manages around 420 assets, lease approximately 2,500 tenant customers.
Average rent collections during the period totaled a healthy 97%. This impressive result was complemented by 238,000 sq m of leasing terms agreed across 286 individual deals. Centuria has a wide variety of tenant customers, we partner with Australia and New Zealand's largest corporates to provide effective solutions to household names including Woolworths, Telstra, Coles, Wesfarmers, Arnott's, Visy, Heritage Lifecare, and Healius. Our largest tenant customer by a factor of four is the federal, state, and local government, with exposure to more than 12% of our portfolio, providing a steady source of rental revenue. Collectively, our Australasian platform provided a high average occupancy exceeding 97% and an average WALE of 6.3 years during HY23.
The group's high occupancy and staggered expiry profiles provide opportunities to deliver income predictability as well as capturing rental uplift upon expiry. Turning to development on Slide 18. Centuria's development team delivered a number of projects throughout the period worth a collective AUD 220 million while progressing our AUD 1.7 billion development pipeline. These projects include opportunities to upgrade, refurbish, and redevelop properties, as well as provide new assets for our funds. Some of the key completions include a 41,000 sq m multi-unit industrial estate in South Dandenong, Victoria. 22,000 sq m industrial warehouse in Direk, South Australia. A 4,500 square meter A grade office lease to the federal government on a 10-year lease and a three-story hotel conversion in Auckland, New Zealand. Let's take a closer look at our unlisted real estate platform on Slide 19.
Centuria's unlisted funds have expanded by more than 7% during the period. Our unlisted funds continue to garner strong interest from a range of capital sources and service more than 12,000 retail, wholesale, and institutional investors. More than AUD 14.6 million in recognized performance fees were generated from the unlisted platform during the period, with a further AUD 160 million in latent underlying performance fees. During HY23, over AUD 1 billion of gross real estate activity was executed, which is largely attributed to unlisted transactions. Slide 20 demonstrates several examples of our unlisted investment opportunities secured throughout the period. As mentioned, Centuria's unlisted agricultural fund, CAF, expanded to circa AUD 250 million, including the recent addition of a high-quality Sundrop Farm glasshouse.
As John mentioned, Centuria presently owns 25% of large-scale Australian glasshouse infrastructure. We're in the process of finalizing negotiations for further glasshouse assets on long-term sale and leasebacks. Our real estate credit offering is provided by Centuria Bass. During the period, Centuria Bass launched four single asset funds worth more than AUD 76 million on average terms of less than 18 months. These loans are secured by first mortgages and largely comprise residual residential stock and strategic land parcels. The open-ended Centuria Bass Credit Fund, or CBCF, continued to grow its loan book with strong investor interest. Within the more traditional asset classes, Centuria launched the Value Add Office Fund underpinned by a fit-in investment in Perth's Allendale Square asset. The asset was acquired in partnership with MA Financial Group, providing a 7.25% cap rate and 85% occupancy.
vacancy enabled Centuria to use its in-house capabilities to execute its value add leasing strategies. Following Centuria Industrial Income Fund No. 1, we launched SIF two during HY23. Moving to our listed entities on slide 21. Centuria's pure-play AREIT delivered a solid performance throughout HY23, delivering strong leasing success, which is credited to demand for high-quality assets within the office and industrial sectors. Since the start of COVID, COF has leased over 150,000 square meters of NLA, more than 51% of its portfolio, the largest volume undertaken in the REIT's history, which highlights tenants recognition for collaboration and corporate culture within an office as opposed to working from home. Within the HY23 period alone, COF leased more than 30,000 square meters across 32 individual deals, which increased portfolio occupancy to 96.4%.
Positive industry data continues to reveal increasing return to office metrics will benefit, which will benefit COF's portfolio going forward. Like COF, CIP demonstrated strong leasing success across its urban infill industrial portfolio, generating 19% lease rents across deals executed throughout HY23. This strong top-line growth remains conducive to supply, demand, and balances across industrial markets, and CIP has benefited from this with 99% portfolio occupancy. Importantly, 20% of CIP's portfolio income provides CPI index rent reviews, which offer a natural hedge to inflation. During the period, CIP reduced its gearing to less than 32% through strategic divestments and increased its hedging to 77%. Both REITs continue to focus capital on management with gearing in the low to mid 30% range, substantial undrawn debt, ample debt covenant headroom, and aggressive debt expiry profiles. Let's move to slide 22.
Through unlisted mandates and partnerships, institutional investment has grown from AUD 300 million in FY20 to AUD 2.1 billion today. In addition to the existing office and daily needs retail mandate, we have recently formed two partnerships with separate Morgan Stanley Real Estate Investing-sponsored vehicles across here industrial portfolios. This institutional capital complements our deep network of retail and wholesale investors. Through strong established relationships, we are able to tailor unique transaction and fund opportunities for various institutional partnerships to match various risk appetites and allocations into a range of property sectors. These initiatives extend to bespoke mandates, capital partnerships, and selected JVs. We expect to further growth over the coming period. Before I pass over to John, I'd like to highlight across several alternative verticals, beginning with agriculture on slide 23.
Agriculture AUM has now reached AUD 420 million, including CAF, which has grown to AUD 250 million. As we work through negotiations for glasshouse assets on long-term sale and leasebacks, we are focused on acquiring further high-value protected cropping and agriculture supply chain real estate as we pursue an AUM target of AUD 650 million-AUD 700 million for agriculture by FY23 year-end. Slide 24 outlines the strength of our real estate financing offering. During the period, Centuria Bass Credit executed 19 real estate loans worth AUD 350 million. This included lending across a diverse range of asset classes and sub-markets. More than 90% of its facilities were first mortgage loans. Again, the exceptional growth illustrates strong market demand for alternative real estate finance solutions, which we expect to continue for some time.
Slide 25 outlines our AUD 1.7 billion unlisted healthcare platform, which spans the Australian and New Zealand markets and has a further AUD 850 million of development pipeline. During HY23, two healthcare acquisitions worth AUD 42 million were added to the platform. Centuria's opening the Centuria Healthcare Property Fund, or CHPF, accounts for AUD 600 million of AUM. In total, Centuria now has more than 100 healthcare properties servicing 235 tenant customers. Let me conclude by reiterating Centuria benefits from a very well-diversified real estate platform by geography, fund type, and capital source. Our platform is supported by experienced professionals throughout Australia, New Zealand, and the Philippines, many of whom have significant experience throughout various market cycles.
We will continue to remain focused on the capital management of our vehicles, and we'll also take advantage of opportunities that arise to deliver attractive return to our investor clients. Thank you. I'll now hand back to John to talk through group strategy.
Thank you, Jason. Thank you, Simon. Of course, whilst I'm reading this strategy has been developed after careful consideration by all our senior team here. As Centuria will continue to grow, our high margin unlisted platform in Australia and New Zealand, which currently has a 65% portfolio weighting, we build on our diversification into healthcare and agriculture particularly through the open-ended unlisted funds, CAF and CHPF, which are well supported by our investor network. We believe we'll continue attracting strong investor demand for these products. We also believe there'll be increased opportunities throughout the real estate credit markets, the Centuria Bass Credit Funds are proving to be very well supported by both our retail and wholesale distribution network.
We can foresee continued growth in this division, supported by strong tailwinds arising from tighter traditional credit markets. I will continue to deploy investment opportunities for our institutional partnerships across retail and healthcare verticals. We actively seek value add office and other opportunities for the unlisted network. The value add is a core Centuria skill set. We've got a long track record for providing these opportunities in suitable market conditions. We'll continue to actively manage our AREITs, COF and TIP, capitalizing on industrial rental growth potential and repositioning where appropriate. We'll continue to access the development pipeline, which provides our funds with modern market-leading assets. I will still encourage growth through select corporate acquisitions where opportunities provide accretive expansion and they relate to our real estate bias.
Before I open the floor to questions, on behalf of Jason, Simon, and our management team and the board, I'd like to thank our security holders for your continued support. That concludes the formal presentation. I'll now hand back to the operator to commence Q&A.
Thank you. As a reminder, if you'd like to ask questions on the telephone, please press star one one and wait for your name to be announced. You can see your request. You can also press star one one. One moment for the first question. The first question comes from the line of Tom Bodor from UBS. Please proceed.
Morning, team. Thanks very much for your update. I just was interested in the recognition of performance fees, and specifically where if the fund does decide to roll for an extra couple of years so that the asset doesn't need to be sold. Just wanted to understand how that will ultimately impact the recognition of performance fees there.
One moment for the speakers. We seem to have low bandwidth from the audio. Stand by, we'll check on the technical side.
Hello? Can you hear me, Katie?
Tom, just one moment. We're just checking on the audio and waiting for the speakers to rejoin. Thank you.
Could you hear me ask? All right.
Back. Tom, would you like to repeat your question?
Sure. Thanks. Sorry, I was just asking about the performance fee recognition where ultimately a fund decides to defer the sale of an asset, how that will impact the recognition of performance fees in future periods.
It's Simon Holt here. Tom, in that scenario where we've recognized performance fees inside that two-year hurdle, those performance fees recognized will stay, and then we'll effectively slow the recognition of that revenue over that longer period of time or that extension period of time, with the view that towards when we close out or sell the asset, we probably have about 30 odd % of the revenue still to be recognized.
Yep. Okay, thanks.
Yeah.
The other question I had was just around the velocity of capital raising. Just would be keen to understand where you're sort of seeing the most demand in terms of your investor base at this point in time, be it sort of retail investors or more institutional wholesale investors.
Hi, it's Jason here, Tom. For the period on the unlisted, so raised just over AUD 430 million of equity, so it's pretty successful period in a difficult environment. As mentioned in the presentation, there is a lot of demand for those alternatives. We're getting a really good run with ag, and we've got a very strong pipeline of assets in that space. And that's been well supported by private banks and directs. Healthcare is still strong. We did a raising just pre-Christmas and we're probably surprising the upside on that. Again, a lot of the wealth management platforms have been supportive of that healthcare thematic.
If you look at the traditional asset classes, you know, office, you know, it's more that value add office like Allendale Square, rather than Core. We also did the industrial in Mackay as well, but definitely a preference probably and more demand to those alternative asset classes.
Thanks very much. Just in terms of the actual core investors as well, so sort of the institutional investors versus your traditional, single asset syndicate type investors, has there been a shift within that sort of mix?
Yeah, look, I think, the ongoing mandates we've got, we've still got demand there to fill those up, on new inbound interest. There's still a lot around logistics, industrial. We think sort of core plus value add part of the sector. And we're looking at probably some office strategies, value add office strategies as well. A lot of interest. We're seeing a lot of the Asian fund managers that really are turning away from China and looking at Australia. I think in the new year, this new year, we've seen a lot of pickup interest from those offshore groups that do wanna expand in Asia, but they are only focusing on a couple of countries now.
Okay, thanks for your time.
Thank you for the questions. One moment for the next question. Next question we have on the line from Simon Chan from Morgan Stanley. Please proceed.
Hi. Good morning, John, Simon, and Jason. My first question, just wondering how much worth of unlisted AUM expired last half? Or actually a better question, how much worth of unlisted AUM is expiring this year in FY23? What insights can you give us as to what the plans are for those money? Like, is it have people put in redemptions-
Put in redemptions.
Are you gonna wind them up or roll them? Like, how should we think about that bucket of AUM?
Well, look, we'll confirm the exact number. look, it really is a, you know, asset by asset, fund by fund, sort of focus. You know, we obviously, in those unlisted funds, if the term does come up, we make a recommendation to investors, position, obviously the market and that particular sector. You know, in the, in the vast majority of cases, the investors would back our recommendation, which it would either be a sale or an extension of that fund. We can come back to you with the exact amount of. Tim can come back to you with the exact amount that is expiring year or two. I think, you know, a lot, as you know, Primewest did extend out a lot of their funds prior to listing.
That was 10 years from sort of circa 2018, 2019. Some of these are longer dated. You know, there are assets that come up, and you have seen us sell some assets during the period where we think it is the right time to sell for particular reasons.
Right. Okay. Fair enough. Hey, I get that C&I itself is very well capitalized. Simon's presentation covered off on that. Just across the whole platform, I think slide 13, you got some metrics there, but can you give us a little bit more color? Like, for example, what would be the range of gearing or ICR that you guys have across your unlisted platform?
Look, it does range across the platform, depending on whether you've just got the old Centuria investments versus Primewest, the old Primewest investments in Earth, and even New Zealand has slightly different outcomes. I think the key thing that we've seen over the last six is where we've had pressure on ICR covenants, in particular single asset funds. We have been able to negotiate and reduce the ICR covenants predominantly from 2% down to 1.75%. That has been a conducive conversation with the banks throughout the last six-nine months.
Right. Would that be a lot of? What percentage of your funds were under ICR pressure, you reckon?
It'd be very low. I mean, we've got over 150% funds, and we're talking maybe somewhere between 5% and 10%.
Okay, that's very good. My last question for you guys, just Can you give some comments on your pipeline? I think you guys did about AUD 1 billion worth of gross activity last half. Jason in his presentation mentioned that ag's probably got another AUD 250 million-AUD 300 million to go over the next few months. you know, just pipeline in general, what's it telling you for other sectors over the, you know, the remainder of FY23?
Yeah. As mentioned, Ag, I think very strong pipeline. We're in, you know, discussions on a number of assets there. Obviously credit, we think there will be another strong 6 months on the credit side. We're just, yeah, we're seeing a large number of very high quality lends come through since the banks have, you know, are tightening up and, even taking a bit longer for them to approve. We are seeing some really good first mortgage, lowly geared, you know, high quality assets there. That will be, I think, another strong 6 months there. Look, we're just, you know, as you know, we're very opportunistic on the value add side.
As we see non-core portfolios, you know, come into the market, if we think we can provide attractive returns for investors, we'll step in there. We are expecting, you know, transactional or market activity to pick up over the next couple of months and particularly in office. You know, we'll definitely be weighing in if we see asset tools that we can add value through repositioning and the leasing.
Great. Thanks, guys. That was all.
On the other side, obviously, as I said, you know, we've still got, you know, a chunk of the mandate, the daily needs retail mandate.
Okay.
Obviously seeing opportunities come through there, so we would like to pull that up as well.
Very clear. Thanks. Thanks, Jason.
Thank you for the question. One moment for the next question. The next question comes from the line of Edward Day from MA Financial Group . Please proceed.
Good morning, team. Just a couple from me. Firstly, from memory, I think the ATP fund is coming up in this half. Can you just give some insight into how you're thinking about that and whether there's any assumed or embedded performance fee that's included in your guidance?
Look, Simon can talk to the fee, we're currently talking to all the main investors. That's obviously been one of our most successful funds. They've had a return of capital of close to half their initial investment and, you know, a return, I think, close to over 20%. There's a lot of happy investors there. How the extension works is, as I mentioned, we make a recommendation. For the second extension, it's gotta be close to being unanimous, but we can take out any minority partners at ECA that don't want to extend if the vast majority do. At the moment, we're just talking with investors, seeing what they wanna do. We'll make a decision with them over the next month or two.
Just in relation to the fee itself, I mean, it's been recorded in line with the current stated policies that we've discussed over the years. There's still a piece left to be booked that represents that 30%-odd , I think, that we talked about earlier.
Looking at that, you know, the assets in that small portfolio, you know, they are very well-positioned as life sciences assets, and obviously there's not a lot of that in Australia currently. You know, we think if we were to transact them, there would be the buyers out there for that type of asset.
Okay. Just on, it looks like C&I's balance sheet's got about 35% of the Allendale Square Fund, the industrial fund. Just keen to hear your thoughts on how that sell down process is going. Also, just with Sundrop as to when that settles and how that fundraising process is going.
Starting with Sundrop first, that equity raise commenced basically this week. We expect that to go pretty well from early indications. You know, obviously the plan is to get that capital recycled back onto the balance sheet. Allendale Square, yeah, there is some there. It has reduced through the last month. You know, what we've, what we've seen, particularly with a lot of the large Perth-based investors, they did wanna see a little bit of leasing progress in the building. Some of these investors can commit very large sums. The good news is that we've had some great leasing success already, so we've agreed terms.
On one of the lower levels in that building, I think the rental guarantee was AUD 500, and we've just done a five-year deal at AUD 610 under assumed incentives as well for a global tenant. I think as this good news filters through the sell down will just pick up. Look, we will leave a balance sheet for a little while, but we'll continually sell down over the next period.
That's great. Thank you.
Great. Thank you.
Thank you for the questions. One moment for the next question. The next question comes from the line of James Druce from CLSA. Please proceed.
Good morning, John, Jason, Simon. Thank you for your time. Just wondering what you're assuming for, sort of, in the second half in terms of revaluations, divestments? We've already talked about acquisitions and developments.
Revals.
Revals, yeah. I think on the, on the revals for the second six months, I mean, most of those. I mean, at least a third of the portfolio has been well announced through SIF and COF on what happened on revals. I mean, reasonably flat, maybe a little bit down on COF. Reasonably flat on SIF. I think that's consistent across the Australian portfolio. The New Zealand portfolio comes through a revaluation cycle at the end of March, so that may have a, be a bit further down, but I think there's still reasonable values being held up at the moment.
On divestments, there's not a lot that we've assumed. There's two or three, per, you know, ex Primewest assets that we're looking at possibly taking to market. That's about it.
Okay. Development exchange completing.
On developments completing in the next sort of few months, there's not a lot of actual completions.
We've just sold the 51 Cook Street, which is gonna hopefully settle any day.
That should settle by, hopefully by the end of the month. We'd expect probably a similar number to what's in the first six months, so that AUD 250 mark by the end of June.
Yeah. Okay. There's nothing that's been exchanged but not settled at the moment, is there? There's no sort of outstanding assets for acquisitions?
Not over the 31 December position, no.
In terms of scales, it's organized.
Okay. Yeah, exchanged but not settled. Yeah. Yeah.
Yeah, exchanged but not settled. Yeah.
Okay. When did Yeah. That's clear.
Yeah, that's clear. That's clear.
Just curious about the Primewest founders. When does the earn out for those guys end? Is that in line with the escrow roll-off in April? Is there any reason that you think they won't stick around?
James, it's John. I think there was no earn out. There was a requirement that they didn't sell, there was some limitation on the sale of shares. I think.
I think it was two years.
two years.
April to June.
Is that passed?
No, that's
Half the shares are constrained.
Yeah.
Half the shares are non-constrained, I should say.
Yeah.
That will result in a roll-off those this year.
Correct.
In terms of why they would stay and why they wouldn't, I think Look, I think the position with those guys is, firstly, it's been a very good partnership. They're very good operators. They've continued to show very strong interest in the business. They continue to be a very solid shareholder block on the C&I register, and a welcome one. If you think about their motivations, I don't think it's changed since we did the transaction on the first day. They have a big investment in the downstream unless a portfolio, you know, they quite appropriately look to us to husband that for them. I'm confident that they're happy with the way we're managing that portfolio.
When you overlay the mature systems and professionalism, at all levels, including funds management and property management services, I, you know, I'd like to say not that Primewest wasn't going well, it's a very good company. I hope to improve it. Look, we've just found the founders to be helpful. They don't have to be in the office every day. But where we're doing things, particularly in WA, I know that Jason and I, in particular, really appreciate the insights they give us.
If you look at things like agriculture, a lot of the encouragement that we've had to fill our book out in agriculture and where we think we're gonna be very successful in that sector as part of our diversification program, you look at a lot of the D&A from that started in Primewest. You know, you've got a good credit worth too. I'm sorry that was a long answer, James, you know, we just don't. It is going very well. You know? I think one of the secrets when we go into M&A is we're not trying to, you know, We are trying to get on with these people. We're trying to get a real win-win, it's hard, which means a lot of the things we can't do.
We do like people to stick around. We do like people to continue to own their C&I shares. When we look at new opportunities in M&A, which we do all the time, we're really looking at, A, the quality of the operator, but B, are these people that we can get on with? You know, staying close to the sort of best credit guys.
Okay. One more if I may. Where do you see the constraint at the moment? Is it more the opportunities that are available or is it the capital?
I think, look, this Jason can help answer. Look, I think for us, you know, we've been around a long time and we've seen properties like this before. You know, you've seen this group deliberately set about diversification strategy. This is not an accident we're out there in healthcare. It's not an accident we're in agriculture. It's not an accident we're in debt. We know there are times when, you know, traditional asset classes. Well, if you look at the metrics across the office portfolio that Jason's just been through with you, I think that's probably astounded a lot of commentators. They can't believe that there hasn't been huge value destruction. They similarly can't believe that the leasing is so vibrant and strong and occupancy is so high.
We're now coming through this period for people where people are returning to the office. You know, we had the head of a major bank in the office from New York this morning. I was really worried about occupancy in New York. He said, "No, you're at work or you won't have a job." You know, Australia might be the last people to get back on this bandwagon. Look, will pressure come to office? Yeah, probably there is, I think. We've talked ourselves into it. Globally, I think we've done the right thing in maintaining a strong presence in office. We understand investors are nervous about it because they pick up the paper and, you know, a lot of negative stuff written about people wanting to work together in offices.
It's a sort of, you know, social disease, which of course it's not. Industrial, we just, you know, we look at the rent growth potential that's still to come in industrial. Jason and John may comment on it. Yes, we're astounded by it, but we don't think it's over.
I agree totally. Obviously most of you would've listened to Jesse's results last week and obviously extremely strong in 90% releasing spreads, you know, global lowest vacancy in New South Wales and throughout Australia. Very limited supply. There's still a lot of tailwinds in that space and, you know, that's, particularly that CIP portfolio, but also the other 80 assets around the country and other vehicles, are, you know, being vast majority infill locations are very well.
To ride that as well. Look, there's still a lot of opportunity out there. We expect more to come to market. you know, obviously it's a tougher environment for raising AUD 430 in our listing in six months is, you know, it's not far off our record. We're still doing it, but we are doing it in different sectors.
All right. Very good. Thank you.
All right. Very good. Thank you.
Thank you for the question. The next question now comes from the line of Ben Brayshaw from Barrenjoey. Please proceed.
Hi, John, Jason. I was wondering if you could comment on the weighted average cost of debt for the last six months, and what are some of the factors that have contributed to an increase in that for this period, please?
Should I address that one?
Yes. Ben, we put in at the back end of the full year about AUD 150 million of new debt, and that's a significant contributor to that. The cost of debt has gone up as well. I think the good teases comment that I made earlier around this extra AUD 50 million to in retail raising new term maturities, that's at a significant lower margin than what we do have on the current corporate bonds. You know, we should see a bit of a saving come through for AUD 60 million into the FY24 year. That's it. For all of well, the remaining of 2023 and all of 2024 and beyond.
Are you able to say what the current cost of debt is?
It's probably sitting somewhere between 6.5% and 7% at the moment. We do have some fixed rate debt that is lower, when our margins are at a lot of the margins on drawn debts at 4.25%, 4.50%, it gets up very quickly.
The stuff we're writing through.
Sorry.
The debt down.
Sorry, go on. Apologies.
I'm just saying that the AUD 50 million will be a significant benefit to the weighted average cost of debt coming back down again. We're talking almost 2% on the differential.
Just could you provide some color, please, on the composition of the inventory on the balance sheet and just how you see that moving forward? Perhaps as well, if you could touch on the potential for a sell down of the life care assets as well, please.
Yeah. Look, just going through them, you got McMurray Road. That's a residential site in Remuera . It's a very, very strong, a good suburb in Auckland, something similar to Bellevue Hill. We're actually using that as a sort of potential build to rent project. Been talking to a couple of institutional investors that wanna get into build to rent into the New Zealand market. The plan is to have that into some sort of fund over the coming months. We got obviously the heritage stuff. We are working with a couple of options there to take that off balance sheet. You know, we have seen New Zealand because of the political issues, been quite a difficult market over the last 18 months.
That has been a difficult, that has been difficult raise. We will hold it, until we can, you know, put it into a new vehicle and raise further capital. We've talked about Cook Street in Auckland. We hope to have that as exchange, and that should settle hopefully by the end of this month. We're just waiting for some council certification to come through. We've got the Mann Street, Queenstown asset, which is a development site, opposite the Sofitel in Queenstown. Our original plan was to build a new five-star hotel there. We are looking at a number of options for that site. It's a very well-located site.
It was written down by Augusta when we did do the takeover, and we'll come up with some sort of plan. There is that market has been the strongest market in New Zealand. It's the only locale that has actually had house prices increase in the whole of New Zealand. We're quite of opportunities that we've got down in the Queenstown market, being Mann Street and also our minority share in the Lakeview project as well. Other than that, we have a very small residual site in West Gosford with one of our south social affordable housing projects. In the book at NZD 1.4 million. We've got a number of work streams on that one.
Then we've got a more strategic site, which is something in where we are working towards a larger sort of healthcare precinct up there, which is our long-term play, and that's only about AUD 5 million, just over AUD 5.5 Million dollars on balance sheet.
Thank you for your time.
Thank you for the questions. One moment for the next question. Our next questions comes from the line of Andrew MacFarlane from Jarden Group. Please proceed.
Oh, hi, guys. Thanks, Tom. Just a quick one. Picking up an early question, just in terms of redemptions, just wondering to what degree you're seeing them, if at all, across the business, and if so, what the timing of that might look like.
Yeah. So we've got very few vehicles that actually have redemptions. If you look at New Zealand, for example, they don't have redemptions per se, but they have a probably more sophisticated secondary market, where sellers can sell between themselves. In Australia, we only have redemptions for a couple of our open-ended funds. So yeah, we still see one of those, redemptions have been reasonably modest. And we'd expect that to continue. Yeah, we've raised I can look at the healthcare, for example, raised AUD 30 million just pre-Christmas into that fund. Yeah, we're not seeing massive issues like, you know, we have seen obviously some press around some of the U.S. vehicles.
Got it. Thanks for color. Just, just a second one. Just in terms of the cost, obviously, a bit of, sorry, you're taking out of the business. Just wondering what's been sitting in those cost initiatives. What's the delta or the change? Is it sort of SP&A out of the business or other things that have driven costs lower in the task?
Are you talking about where have we saved costs?
Yeah, exactly. Yeah.
Look, I think, I think it's just that it's been a general view of where the market's at and we've taken some steps to help manage costs going forward. In particular, just around travel, entertainment, managing, quite a work and effort. Obviously through this six months and the prior six months, we had a significant increase in headcount in relation to our property internalization of property services. Managing through that, post that, the move back everything. I'm gonna say most of it was completed in the early parts of the six-month period, but there was a bit that finished up in November. In particular, in the corporate area, it's just, you know, a bit of a cost management exercise that we've been going through.
Great. Thank you, guys.
Thank you for the questions. Our next questions, one moment, please. One moment for the next question. The next questions now come from the line of Richard Jones from J.P. Morgan. Please proceed.
G'day. Sorry, just the AUD 430 million equity raise. Was that all in retail funds and was that inclusive of Bass Credit? Can you just clarify that, sorry?
Yeah, that does include Bass. That's all equity raise for Centuria Capital and the unlisted retail funds for the 6 months.
okay. If you clarify for me how much Allendale Square Fund has raised.
just under AUD 50 million.
Okay. just any color just on return requirements you're seeing that unlisted investors are seeking. Just wondering how much that's moved in the last six to nine months.
It depends on the sector specifically. For example, you know, we're raising in our healthcare fund, at 4.5%, basically. You know, as I said, raised AUD 30 million just in the last few weeks pre-Christmas. In the ag funds, you know, the headline return is 5.25%. We are just attributing that. We do have a buffer, but our headline is 5.25%. Obviously something like office, like Annandale, that's a 7.25% income return on a target IRR of 11%, obviously targeted towards a whole investor market. It, you know, it's a funny one.
You know, if a lot of these wealth managers and investors wanna back a certain thematic, be it healthcare or Ag, they, the risk, sorry, the return hurdles haven't actually increased much at all. They're very similar to what they were 18 months ago. You know, they wouldn't, you know, we wouldn't raise that money, for example, on a large core office asset at 5.25%. Yeah, it, it is surprising. On the debt side, you know, it's all for first mortgage debt. Those returns are showing anywhere from 7%-10%, depending on, depending on the actual transaction.
How much have they changed in that same time period? In that same time period.
Look, they, if I was to go back, that's probably up 1%, maybe 1.5%. What we're seeing is the opportunities come at those levels, just because the bank has tightened up so much. There's definitely a lot of return on those personal sort of 12-month bridges and the like, so that we can actually, offer some pretty attractive returns for those high net worth investors.
Thanks, Jason. Thanks, Jason.
Thank you for the questions. At this time, there are no further questions from the line. I would like to hand the call back to the management for closing.
Look, thank you everyone for joining us this morning. I hope that was informative. I'd like to thank you very much for your support over the period. Thank you.
Thank you. This concludes today's conference. Thank you for your participation. You may now disconnect.