Thanks for standing by, and welcome to the Home Consortium Limited FY 2022 full year results briefing. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. David Di Pilla, Managing Director and CEO. Please go ahead.
Good morning, and thank you for joining today's call. Before we commence, HMC Capital would like to acknowledge the traditional custodians of country throughout Australia and celebrate their diverse culture and connections to land, sea, and community. We pay our respects to their elders past, present, and emerging, and extend that respect to all Aboriginal and Torres Strait Islander people today. My name is Dave Di Pilla, and joining me on the call are Will McMicking, Group CFO, and Misha Mohl, Group Head of Strategy and Investor Relations. I am proud of the financial results and progress we have delivered in financial year 2022. Our strategy and ambition to create Australia's leading ASX diversified alternative asset manager is now well underway following a period of transformational growth over the last 12 months. Turning now to slide 3 of the presentation, an overview of the HMC group today.
Our business continues to evolve at a rapid pace. HMC now manages AUD 5.8 billion of assets across three entities, which have been established internally and grown organically. The strategies for these entities are consistent with our high conviction investment approach, which targets assets that are exposed to structural tailwinds and where we can add value. Our track record since listing in 2019 builds on the value we created from the original Masters acquisition and demonstrates the quality and depth of our people. Importantly, our management team and board are significant shareholders in the business, which provides strong alignment with shareholders. Our key competitive advantage is our ability to do large, complex transactions. We have also built a high-performing in-house operating platform to actively manage our real estate assets and investments.
As we look into financial year 2023 and beyond, our mission is to connect capital with high conviction alternative investment opportunities. Moving now to slide 4, where we have summarized our journey and key achievements since the establishment of the group in 2016. This slide doesn't do justice to the first-class execution and hard work of our people to transform HMC Capital to its current position. In this relatively short period of time, we have executed almost AUD 7 billion of gross transactions, raised over AUD 4 billion of capital, redeveloped 500,000 square meters of real estate, and established 3 high conviction funds with permanent capital. On slide 6, our strategic achievements in financial year 2022 and our future priorities. Firstly, we've invested to secure key talent and expand our distribution and investment capability. This investment will support our growth ambitions over the medium term.
Secondly, we continue to diversify our sources of capital. This month, we reached first close on HMC Capital Partners, which is our first unlisted product. The fund is already available on three investment platforms, and we recently finalized the appointment of a domestic and offshore placement agent to raise institutional capital for this strategy. In addition, we are today announcing two new initiatives to raise institutional wholesale capital for a AUD 1 billion last mile value add logistics strategy and a healthcare capital partnering initiative, which we'll launch later this year. Finally, we successfully scaled our platform with a record period of deployment in financial year 2022. Importantly, we also demonstrated a disciplined approach to capital allocation in what has been a volatile and evolving market this calendar year.
We passed on a number of acquisition opportunities, but also opportunistically divested assets in both our REITs and from our HMC balance sheet to build funding capacity and dry powder. Accordingly, our group is now well-positioned for growth. As we look forward, we remain well-positioned and capitalized to grow our external assets under management well beyond our AUD 10 billion and 2024 targets. Turning now to slide 7, where we'd like to discuss our key result highlights for financial year 2022. We delivered pre-tax FFO of AUD 91 million, which compares with AUD 35.8 million in the previous period. We also delivered pre-tax FFO of AUD 0.31 per share, which is up 126% on financial year 2021, and it also exceeded our previously upgraded guidance of AUD 0.29 per share.
We've distributed AUD 0.12 per share of fully franked dividends, and our payout ratio of 39% provides the business with capital to reinvest into high ROE opportunities. The successful monetization of the remaining former Masters properties on the HMC balance sheet has further strengthened our financial position, which is currently net cash, and we have over AUD 300 million of potential funding capacity. Our external AUM has grown over the period to AUD 5.8 billion versus AUD 1.4 billion 12 months ago. This record AUM growth during the year was underpinned by approximately AUD 4.6 billion of gross transactions. We generated AUD 64 million of fund management revenue during the year, compared with only AUD 11 million in financial year 2021, which demonstrates the scalability of our platform and our diversified sources of fee revenue.
Our HomeCo Daily Needs REIT is now an S&P/ASX 200 entity following the successful acquisition of Aventus. HDN now controls a AUD 4.7 billion portfolio of strategic last mile infrastructure logistics, and it has a significant growth pipeline. The listing of our HealthCo Healthcare & Wellness REIT in September 2021 was the largest real estate IPO since 2014 and demonstrated the significant investor demand for a diversified healthcare REIT in Australia. This month, we achieved financial close with HMC Capital Partners with now approximately AUD 300 million under management. This was a strong result in a difficult capital raising environment. Pleasingly, our first seed asset for the fund is a 14% strategic stake in Sigma Healthcare, which is up by 22% since we acquired the position, providing a strong start to fund per-performance for HMC Capital Partners.
On slide 8, we illustrate our strong track record of growth in AUM, EPS, and TSR since listing in October 2019. The slide speaks for itself. Moving now to slide 9 to discuss our commitment to sustainability and ESG. We are committed to sustainable practices that drive long-term value creation and achieve a positive impact on the communities in which we operate. Our inaugural sustainability report last year identified six sustainability commitments with the objective of creating healthy communities. I am pleased to report on the following initiatives we delivered over the year, which demonstrate our progress across our asset owning REITs in particular. We participated in the Global Real Estate Sustainability Benchmark, GRESB, for HDN. Our HDN LFR development in Mackay has been designed to achieve a Green Star Buildings rating. We believe the first LFR development to achieve such a rating in Australia.
We've undertaken building performance ratings of NABERS and Green Star performance for a large number of our assets. We are implementing a smart energy management system to achieve energy efficiency across 21 assets currently, and we'll roll this out across our entire portfolio within the next 2 years. On slide 10, our decarbonization roadmap to achieve net zero emissions for scope 1 and 2 by 2028 is outlined. This will be achieved through a smart energy management system program and ongoing investment in solar power infrastructure across our underlying REIT portfolios. Further progress on sustainability strategy is detailed in the appendix. Moving now to the funds management section of this morning's presentation. On slide 12, we provide an overview of our existing funds management platform today.
You'll see we've included HMC Capital Partners, which achieved first close this month and will become a significant growth engine for the group in the future. Importantly, the fund expands our platform into new alternative sectors, including private equity, and gives us much greater flexibility to deploy capital during times of market volatility and dislocation. Over time, we believe our platform will continue to rapidly evolve as we establish new vehicles and match capital with high conviction alternative opportunities. Going to slide 14 to provide an update on our REITs, HDN and HCW. Financial year 2022 was a huge year, with HDN growing AUM by 249% and highlighted by the acquisition of Aventus, which has been successfully integrated with forecast cost synergies now delivered ahead of expectations. HDN's financial performance during financial year 2022 was pleasing.
FFO of AUD 0.0885 per unit was up 30% on financial year 2021. Operating metrics were also very strong, with greater than 99% occupancy, 99% cash collection, and 5.7% positive leasing spreads. HDN's capital management has been proactive and disciplined, as highlighted by the post-balance date sale of the Sunshine Coast LFR asset for AUD 140 million. This sale reduces HDN's pro forma gearing to 30% and increases hedging to 74%. Importantly, HDN now has AUD 500 million of dry powder for value enhancing growth opportunities. The shift to omni-channel fulfillment is directly benefiting strategically located daily needs assets, which increasingly act as last mile logistics hubs.
We believe this mega trend will underpin the long-term value of HDN's portfolio and the continued outperformance of this asset class, both in Australia and globally. Our HealthCo REIT also delivered a solid maiden first financial result. Financial year 2022 FFO, AUD 0.051 per unit exceeded PDS forecasts. Our operating metrics were strong, with 100% cash rent collection and occupancy increasing to 99% versus 96% at IPO. Since listing, HCW has demonstrated discipline in a competitive environment for acquisitions, with cap rates tightening to record low levels despite rising bond yields. HCW took advantage of this disconnection by selling its St. Mary's asset for a 71% premium to book value. The sale delivered immediate upside in excess of the forecast development profit and returned HCW to a net cash position with over AUD 400 million of liquidity.
We remain highly attracted to the long-term structural tailwind underpinning future demand for healthcare services and infrastructure. On slide 15, we discuss our growth strategy. We remain well-positioned to maintain our strong growth trajectory and grow AUM beyond AUD 10 billion. While the exact pathway is not predefined or likely to be linear, we see multiple options to drive strong growth. Firstly, as I highlighted earlier, our two listed REITs remain primed for growth with low gearing and significant dry powder. We are today also announcing our intention to establish two new unlisted institutional capital partnership opportunities, including a AUD 1 billion value add last mile logistics strategy, which complements our HDN's investment mandate and capitalizes on attractive acquisition opportunities which are now coming to market. Secondly, HMC Capital's balance sheet interest in stages 2 and 3 of the Camden Healthcare Precinct.
We will launch a process later this year to identify a strategic long-term capital partner for the project. We see significant growth runway for HMC Capital Partners Fund One, which targets undervalued asset-rich companies where we can influence positive change. We are targeting to grow the fund to AUD 1.5 billion of equity over time, which could generate material FUM growth and performance fees for the group. We recently appointed a domestic and offshore placement agent to raise institutional capital for this strategy. We have also identified corporate M&A activity as another major potential driver of future FUM growth. We will consider strategic M&A opportunities which provide new or complementary expertise or are attractive opportunities for institutional capital partnerships for the group. I'll now hand over to Will McMicking to discuss our financial results for the year.
Thanks, David. Turning now to slide 17 with the earnings summary. FFO for FY 2022 was AUD 91 million or AUD 0.31 per share on a pre-tax basis, which materially exceeded the guidance provided at start of the financial year of AUD 0.185. Key movements during the period included a AUD 53 million increase in funds management revenue, which was driven by the Daily Needs REIT and the Aventus acquisition. This was offset by a reduction in investment income following the sale of remaining investment properties over FY 2022, of which sale proceeds are currently being redeployed into new HMC managed funds. AUD 28 million of trading profit was also recognized in FY 2022, driven by the sale of Knoxfield and Roxburgh Park at a combined 38% premium to December 2021 book value.
The final dividend of AUD 0.06 per share has also been announced today and will be 100% franked, taking total FY 2022 dividends to AUD 0.12 per share. Moving now to the balance sheet on slide 19. The transition to a property-light balance sheet has continued in FY 2022, with the composition of assets shifting from direct property to co-investments in HMC managed funds, which totaled AUD 609 million as at June. Other assets include management rights recorded as part of the Aventus transaction and a AUD 14 million equity derivative in Sigma Healthcare, acquired as a seed asset for the HMC Capital Partners Fund I. Overall, net assets increased to AUD 846 million, and NTA was AUD 2.31 per share as at June. Turning now to slide 20 on capital management.
As at June, HMC had an undrawn debt facility of AUD 275 million and a cash balance of AUD 58 million, driven by property divestments over FY 2022. Further divestments in FY 2023 are expected to include the Camden George Hospital Trust. Combined with our current liquidity of approximately AUD 330 million as at June, HMC is well positioned to support its future funds management activities, including the HMC Capital Partners Fund I. I'll now hand it back to you, David.
Thanks, Will. Turning now to our guidance for financial year 2023. In financial year 2022, we delivered pre-tax FFO of AUD 0.31 per share, which represented 126% growth on financial year 2021, and was 68% above our original guidance of AUD 0.185. This result included material transactional income and trading profits following a record period of deployment. We believe this is repeatable as we continue to scale our existing platform and execute on transformational opportunities. However, the unpredictable nature and timing of these items makes it challenging to provide an FFO forecast for financial year 2023 at this time. We are providing DPS guidance for financial year 2023 of AUD 0.12 per share, which is in line with financial year 2022. This is consistent with our strategy to reinvest retained earnings into our high ROI growth initiatives.
Our outlook for the business is strong and we are well positioned moving into financial year 2023 with strong momentum and a more established and diversified platform. HMC Capital Partners expanded our platform into new sectors, including private equity, and gives us greater flexibility to deploy capital in the current environment. Our two REITs have strong balance sheets to take advantage of compelling investment opportunities, including their value-enhancing development pipeline. Today, we are announcing two new unlisted real estate strategies targeting daily needs and healthcare sectors. Following an active 12-month period, we are tracking 6-12 months ahead of our previously stated AUM growth target of AUD 10 billion by the end of calendar year 2024. Thank you for joining the call this morning, and I'll now hand the call back to the operator for Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Sholto Maconochie from Jefferies. Please go ahead.
Hi, David and team. Congrats on a strong result in FY 2022. Just had a couple of questions on the cash flow, was a bit weak, but it seems like on operating cash flow that a lot of it's moving to investing cash flow with the distributions received and just the way it's accounted for. Would that be correct, the way the business has changed in the last 12 months?
Yeah, that's right, Sholto. I mean, there's probably three things to call out that aren't traditionally in the operating cash flows. You've got the dividends from the management funds going through investment cash flows. The asset sales going through the investment cash flows. As you'll recall, as part of that Centaurus transaction, we took the acquisition fees in scrip. They're the three key drivers.
Yep. Okay. That's what I thought. Just on the end value. Can you just remind us what the end value is, sorry, for stages two and three of Camden that you're looking at selling down?
Look, what we've said is you can see the carrying value at Camden Stages Two and Three on our balance sheet. We believe that that precinct out there at Camden will be a AUD 500 million precinct by the time it's completed.
Would HCW look at some of that, or is it other third parties would look at that?
The intention at the moment, and we've stated this publicly, is that HCW would actively look to acquire and has an option to acquire, the HMC stake in stage one. If you look at stages two and three, we're talking very significant dollars there, so we feel a capital partner would make a lot of sense for those stages. We think it's probably the most exciting healthcare precinct in the country at the moment. What we do know is there's a lot of interest from institutional capital for that kind of opportunity. We're planning to take advantage of it later in the year once we announce an operating partner for stages 2 and 3 of the precinct.
Would HCW take a partial stake in stages 2 or 3, or just won't look at those stages?
Can you just repeat that? It wasn't clear.
Sorry. Would HCW take a partial stake in the stage 2 and 3 or go to a third party?
It already has a stake.
I mean, HCW. Would it take a bigger stake, or would you sell those remaining?
Potentially that's on the table, but we're talking a very big precinct out there. As I said, it's AUD 500,000. That's a big project.
Okay.
We'll look to access capital at the time. HCW will clearly be part of that discussion, and we'd like it to obviously increase its stake across the precinct. We'll also look for institutional partners as well. It's an exciting project.
Just on the new REIT, that's interesting development. What sort of assets is that last mile? Is it like service stations? Is it warehouses or neighborhood shopping centers? What sort of assets is that targeting in that new fund that you announced today?
Sholto, we'll not be targeting service stations. We've clearly stated in the past that's not part of our strategy. What is our strategy, omni-channel last mile logistics is really what we've become very, very good at. HDN, as I said earlier, has just shy of AUD 5 billion of assets. It has 99% occupancy. It's got 99% cash rent collection within each month. It's got 5.7% positive leasing spreads. That strategy is resonating and working. That is the last mile infrastructure logistics of the future. As a result of that, we are building off that strategy to identify similar assets that.
Probably not core assets that fit the HDN model, but really trying to build a bigger last mile logistics footprint across the country with institutional capital. We think it's a strategy that's not the HDN strategy, but it's an extension of what we're doing there, and it's an extension of a strategy that's been proven and works.
Okay. Then you impaired AUD 21 million on HCW. Is that just because the fund was launched during the year, so it's just a change in the accounting of that in carrying value of that asset?
Yeah, I mean, it's just down to accounting treatment, Sholto. You've got to record it at the VWAP after the listing, which was done in the first half. We brought that carrying value back to the NTA of AUD 2.01. Well, it's all non-cash. It's basically an accounting treatment. It is what it is. We can't really do much about that.
Yep, understood. Just finally, the trading profits this year. Are you expecting any more trading profits in 2023 from the balance sheet?
Look, what we're saying is that there's lots of optionality across this group now. It's a big group. It's much bigger than it was 2 years ago, and there's plenty of optionality now across this platform.
Yep, I've just one more, so if I can push it. The equity yield, what should we assume on the equity yield on the AUD 300 million investment in the Capital Partners Fund?
Well, we've stated that we've got an intention to try and achieve an IRR of 15%. The fundraising documents talk about a 2%-4% running cash yield after deployment in 2 years.
Yep.
We're very confident that if you have a look at the first investment we've generated there, we're up 20% in a month or so, 15% is our target to investors. As this group has built a reputation around, we like to underpromise and overdeliver.
All right, thanks. That's it for me. Thanks very much.
Thank you. Your next question comes from Simon Chen from Morgan Stanley. Please go ahead.
Oh, g'day. G'day, DDP. Hi, Will. Just listening to you answer Sholto's question, am I right to say that your this billion-dollar logistics fund target, you're kind of not targeting, I guess, warehouses as we would know it, but you're targeting more neighborhood malls and somehow repurposing them for last mile logistics. Is that right?
Yep. What I'm saying is pretty clear. Industrial assets are being bid down to what we believe to be unsustainable levels in Australia, 3%-4%. What we've built is the last mile logistics infrastructure of the future. We are on a journey to educate the market, to educate investors, to educate the investment community around the fact that the reality is that our assets within HDN are being used as a critical part for last mile omnichannel delivery across this country today. That's why the demand for our assets is increasing. That's why our occupancy is so high. That's why cash collection is high. That's why our lease spreads are so high. The reality is we're gonna extend that strategy, and we're gonna extend it to assets that probably don't fit the core definition of what HDN is looking for today.
We're gonna identify assets, we're gonna build a portfolio, we're gonna repurpose that portfolio, and we're gonna expand our last mile logistics footprint across this country. We've got a strategy that works and we're gonna develop it and we're gonna expand it.
It's kind of like an unlisted version of HDN, but with value-add assets.
Exactly. Couldn't have said it better myself.
Okay. Cool. Too easy. I only got one more question. I understand that you talk about, you know, timing of deals makes it hard for you to give a guidance for FY 2023. On the other hand, you're saying you're tracking 12 months ahead of your target. Isn't there a bit of a mismatch in those two assertions?
No. No. The reality is that if you look at our results for 2022, there's a lot of one-off items in there. You'd probably get to a place where you'd probably look at the recurring income within that result. The difference between that recurring income, the AUD 31 we delivered this year, there's a lot of one-off items and trading profits. We're expecting to do a similar or greater number of one-off transactions this year in terms of real asset opportunities. What I'm saying is that the challenge you have in this environment is if you, for example, announce the deal in calendar 2023, but it doesn't close until 2024, where does the income go. Where does it sit. All we're saying to you is this is not a linear discussion.
This is saying to you, we are extremely confident we'll get to the AUD 10 billion. We're tracking a year ahead, 6 months to a year ahead of schedule. Where we book that income, is it in 2023? Is it in 2024? I can't be precise, but we're very confident on delivering against the AUD 10 billion plan early.
That's great. That's all I got this morning. Thanks, guys.
Thank you. Your next question comes from Stuart McLean from Macquarie. Please go ahead.
Good morning. Thanks for your time. First question on the just follow up on the Camden potential unlisted funds. Just what's the potential difference maybe between the unlisted healthcare fund that was proposed circa 12 months ago, and what you're looking to do here with Camden, kind of coming back to that idea of unlisted healthcare as a potential fund, please?
When we were looking to do the IPO of HealthCo last year, we did talk about raising an unlisted fund in parallel with it. Suffice to say that you're all there and you all saw it play out in real time. We set out to raise a AUD 500 million healthcare fund. We got blown away with AUD 650 million of demand. Within two days, we had AUD 1.8 billion of demand. We took extra capital at the time in the listed entity. The reality is there was plenty of unlisted institutional capital. The reality is that what we're trying to do now is we're trying to say, well, Camden will be a much different proposition once we have an operating partner later this year.
What we'll look to do is find a very targeted strategic capital partner for it. We get plenty of inbound inquiry around the asset class. We get plenty of people wanting to own that asset class. Once we've developed it and we've got proof of concept, yeah, we'll look to introduce a capital funding partner for the asset and the opportunity. It's very different to what we were contemplating last year. This is really a single partner for a very big precinct.
Sorry to be outstanding, obviously. Is there scope for that unlisted fund to continue to grow? Does it have to be limited to just Camden or if other opportunities out there, portfolios come to market, might be too large for HCW, and you can use that fund or would those other opportunities potentially be a different fund that you might look to commence?
Look, I think, what I would say is that this is a pretty important point to make. You know, we've been making this point for a while now. We are trying to build a sophisticated alternative asset management platform here. In saying that, we do not want to be a group that is just playing a one-way bet on falling interest rates and falling cap rates because that time's finished. You've got to work much harder, you've got to add more value, and you've got to deliver more when you're talking to institutional capital. The reality is that pooled funds are, you know, obviously interesting but challenging in terms of the terms. You've got to really go and add value when you're bringing opportunities to market. What we'll do is we'll try and find the right capital partner for Camden.
If that capital partner can move into other areas, great. We'll have that discussion, but we won't limit ourselves to any kind of opportunities. This group has lots of opportunities. We're looking at a lot of different transactions across the healthcare space at the moment. They're all quite significant, and we'll find the right capital partners for the right opportunities. I think we've tried to summarize the point today where we're doing our very best to bring our investor base and the analyst community on the journey with us here as we grow. At the same time, what I'm saying to you is also that we're trying to distill this message down very simply for you today. We are trying to match capital with great investment opportunities in a diverse sense across the alternative space. That's our goal. That's our mission here.
Good. Thank you. Second question is just maybe a bit of a follow-on from your last comment there. How do we think about the continued growth in inflows in Capital Partners Fund, number one, sitting at AUD 300 million at the moment? When should we expect formal first close and then additional capital flows into that fund as well, please?
HMC Capital Partners will get to first close by end of this month at AUD 300 million. What we'll then look to do is move to sort of AUD 500 million by the end of the year. What we're trying to do is match fundraising with opportunities, obviously sitting on lots of cash in a fund like that, given we call the capital up front, will drag on returns. We're trying to be tactical in the way we go about fundraising. We are looking to build that to AUD 1+ billion AUD 1.5 billion is sort of our long-term target there for that fund. Performance will be important. Delivering and finding great opportunities will be critical.
We are very confident around that strategy that, you know, that adds something very, very strategic and very significant to this group now. We are not any longer having to be a one-way binary bet on interest rates. We are much more sophisticated than we were 12 months ago, and we have now opportunity to take advantage of market volatility through that fund. I think the performance will start to come through because it is a unique strategy in Australia.
Thank you. Just a final one from me. Just on the movements in cash over the last six months. The AUD 144 million of cash at Dec 2021, sold circa AUD 140 million of assets on balance sheet, which implies kind of AUD 280 million of cash. You've finished the year at AUD 60 million. Can you just point out the key cash outflows there that amounted to AUD 230 million over the last six months?
What you probably haven't got there, Stu, is as part of the HMC deal we bought a large shareholding in what is now HDN and obviously paid in part for the management rights. We've got a rec. We'll send it through, but they're the other key movements.
All right, great. Thank you.
Thank you. Your next question comes from Grant McCasker from UBS. Please go ahead.
Good morning. Just on the Sigma deal, can you just clarify how much equity does that use up of that sort of AUD 300 million first close and sort of, yeah. You know, do you expect to be deploying more equity over the next couple of months?
Yeah. The investment we made into the Sigma stake in terms of dollars deployed was AUD 80 million. Obviously, it's up against that deployment number, so you can work that out. We've given you an indication of what our entry price is. What we have said with that strategy, and that's why we believe it's such a scalable strategy is we are getting standalone LVR lines on individual investments. What we do then get is an LVR ratio on that particular investment running at about 50%. Yeah, there's plenty of firepower left in the fund.
Okay, no further equity from that fund's been allocated to Sigma at this point? Is that? Or should I read it's just debt from here?
The way to think about Sigma Healthcare is Sigma Healthcare was bought on the HMC balance sheet. HMC will transfer that into the fund, and then the fund will take on standalone leverage against that position, secured against the position.
Okay, thank you for that. Just sorry to dwell on the billion-dollar fund launch. Just wanted to clarify what will HMC stake in that fund be?
We'll obviously look to have somewhere between 5%-10% of the fund in terms of direct stake. We may even offer some level of shareholding to HDN as part of that strategy, but that's obviously got to go through due process with the HDN board.
Okay. I was heading down that path. Is there any sort of conflict protocols that's gonna need to be aware of between those two vehicles?
We think they'll be completely different mandates, so there shouldn't be any conflict. We do have an internal related party process that we follow pretty closely. They'll be different mandates. HDN's looking for core assets. This is really value-add opportunities that are not suitable for the HDN mandate.
Okay. Finally, you've made a few comments on the call around cap rates, interest rates. You know, are you seeing any opportunities of distress out there, or do you think it's still to come through? Or, yeah, how are you seeing the broader market?
What we would say is that all we can do as a group and as a manager is we can look forward, we can have a view. Can I tell you what interest rates are gonna do by the end of the year or next year, or what inflation's gonna be? No, but I can have a view. What we can then do is we can invest against that view. What we did through the first half of the year is, as we saw inflation bubbling away and interest rates were obviously gonna move up, is we took advantage of the fact that the asset market generally looks back, not forward. We divested assets off the HMC balance sheet. We divested assets at the two REITs, and we've now got ourselves into a very strong position.
As we said earlier, both of the REITs, I think on a combined basis, have close to AUD 1 billion of dry powder. The manager itself now has dry powder and capacity. I think what you could read into that, Grant, is we believe there will be very attractive opportunities over the next 6 to 12 months as a result of this increasing in interest rate environment. I personally believe we're through peak inflation, but I don't think this will be a linear run out of the current market environment. It won't be linear, so you'll get some corrections in terms of listed markets, which will be creating opportunities for capital partners. You'll get some stress in terms of unlisted syndicates that we believe are probably holding assets at pretty high leverage levels.
What we would say there is, you know, you get a 10% reval shift downwards, you get a borrowing cost doubling. Read that script out for yourself. We think there could be some opportunities coming in the next 12-24 months, and we're ready for it. We've positioned ourselves for that.
Okay, great. Thanks, David.
Thank you. Your next question comes from Ben Brayshaw from Barrenjoey. Please go ahead.
Good morning. I was wondering if you could clarify, just in relation to the deferred tax assets. It seems to have declined to be zero. I was just wondering whether you expect to move into a tax-paying position in FY 2023?
Yeah. In the notes for the DTA, you'll see the income tax losses, the AUD 6 million, there. You know, grossed up AUD 20 million of taxable income. At the half year, we said tax losses would cover 12 months of profits and yeah, we're still conserving that position. Yeah, second half will be cash tax, Ben, not the first half.
Okay, great. Thanks, David.
Thank you. Your next question comes from Richard Jones from JP Morgan. Please go ahead.
Oh, hi, David. I've got a couple of questions if you don't mind. Just the Sigma stake, has that transferred from the balance sheet to the fund number one already?
It'll transfer on first close, which will be before the end of the month.
Okay. We should be expecting a significant profit on sale when that happens?
No. What we're proposing there is we're gonna transfer it at our cost. What that will do is two things, obviously, it will give the fund an immediate kick in terms of performance. Investors, first close investors will get the benefit of that going at a cost. Again, that could have been a one-off item that the group could have booked. We could have booked AUD 20 million of one-off. We could have smashed our 31 again this year. What we're doing is we're taking the investment in our fund and we're taking investment in growing for the future.
Okay, that's great for the fund. David, just in terms of the Last Mile Logistics A-REIT fund, have you identified assets for that fund? Again, are you looking to warehouse on the balance sheet ahead of fund establishment?
Look, I think we'll look at all options in terms of how we fund it and how we put it together. What I would say to you is the environment for that kind of asset class and the type of strategy we're deploying against is opportunity rich at the moment. There's a lot of opportunities that we can see.
Okay. What target returns will that fund have?
We're looking at high single digits. It'll be a 9% IRR.
Sorry to ask you a few questions. Just in terms of the Camden build out, what's the timing of the, I assume it must be like AUD 400 million of CapEx or so?
I think Camden has a what's called a State Significant Development approval. We need to commence work there in 2024, about the middle of the year. You can lay out from there, you know, AUD 400 million dollar type project take 2 or 3 years to deliver against. Two years to deliver against.
Okay. Thank you. Just finally, just the co-investment stakes that you'd be looking at holding in the Camden fund and the Last Mile Logistics fund?
Look, I don't think we need to hold a co-investment stake in Camden. What we're saying in Camden is we've got HCW that will have a stake. We'll rightsize the stake for HCW. Obviously, we don't want to put too much funding pressure on HCW. We want it to be a very significant investor in that asset. You know, it's a great asset, and so HCW will take as much as it can of the asset, and then obviously a capital partner will report into the balance. HMC doesn't need to hold that asset. In terms of the fund, look, we remain flexible on that.
Again, as this group has always demonstrated from the day we listed on the ASX, from the day we created HDN, we want to demonstrate alignment with our funds, our capital partners, and our investors as a manager. That will distinguish us. That will come through in long-term value over the journey.
Okay. Thanks, David.
Thank you. Your next question comes from Fiona Buchanan from Morgans. Please go ahead.
Oh, good morning. Look, just a quick one probably for Will. Just, Will, on the FY 2023 DPS, what's your franking expectations?
Yeah. The franking balance as of today covers about AUD 0.04 in dividends. Given we'll move into a cash tax position in the second half of FY 2023, can we think of the dividend as being, you know, AUD 0.50-AUD 0.75 range?
Thanks, Will.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from Andrew MacFarlane from Jarden. Please go ahead.
Oh, hi, guys. Just one quick one for me. Obviously, consciously, things can take time as well, but just wondering how the debt pillar is sort of tracking of, you know, those other, you know, alternate streams that you're sort of looking at.
Andy, can you just repeat that? The line just broke up a little.
Sorry, Dave. Just wondering how the debt side of, you know, your new alternative sort of areas you're looking at. Just wondering how the debt side of things is tracking in terms of forward-looking expectations.
Yeah. Are you talking about capital partners or? Oh, right. Okay. In terms of.
No. Yeah, when you're talking about looking at private equity, infrastructure, credit. Yeah, looking at the credit part of it.
Oh, okay. Great question. Thank you for that question. I was hoping someone would ask that. Look, now is not the right time for us to go into that space. It's too competitive. There's lots of global providers, funding groups in Australia. I think that's crazy space for us to go into. You're chasing small loans, AUD 10 million, AUD 20 million loans to developers. Too many parties chasing too few opportunities. There's gonna be a train wreck coming. No, thank you. Not for us now.
That's something we should think about. It's obviously, it's also aimed for the future, but just waiting and watching. Is that really the key thinking?
We'll go into it when we're ready at the right time. Now is not the right time for that strategy.
Got it. Thanks, David.
Thank you. Your next question comes from Jeff Pehl from Goldman Sachs. Please go ahead.
Hi. Good morning, everyone. Just a quick one from me. Just on the corporate expenses, you know, we've seen that increase, you know, over the year. I mean, rightfully so, just given the growth you've seen in the business. Just going forward, should we think about, you know, the growth in that line item, you know, maybe take the second half of 2022, about AUD 12 million, and use that as an annual run rate going forward?
Do you wanna answer that, Will? Then I'll.
Yeah. I mean, Jeff, I mean, we're obviously growing the business organically and, you know, we've always said we've been very disciplined, you know, in terms of how we stagger the costs. You know, we've previously guided to sort of, you know, long-term corporate costs, you know, funds management margins 60%, pre-acquisition fees. You know, we're confident we're heading that way. You know, if we give you a bit of insight into the Aventus deal, so the, you know, incremental EBITDA margin of that deal ex acquisition fees is 63%, so tracking ahead of budget. I mean, that's probably all I'd say at this time.
Yeah. I think the way I'd answer it, Jeff, is yes, we are making an investment in the future. Yes, we are making an investment to get to our AUD 10 billion target. We've talked about some of the hires that we've made in the presentation today. You'll recall that, I think in the first paragraph of my presentation this morning, I made a pretty powerful point, which I hope was not lost, in that all the FUM that this group manages today has been organically grown. Importantly, we're not going out buying lots of FUM. We're not paying other managers for that. We're growing it internally, which is the most powerful FUM you can grow. Our REITs have all been internally grown, so we're making an investment in the future.
That investment probably running at about AUD 5 million-AUD 7 million of investment that we'll make in people and human capital to grow the funds under management, which I think for the growth ambitions we have is not that significant.
Very clear. Thanks, David and Will.
Thank you. You have a follow-up question from James Druce from CLSA. Please go ahead.
Yeah. Hi. Good morning, David and team. Just on your last comment, David, just about growing organically, which has been fantastic. When you look over the next few years, is that gonna be, you know, mostly or even all organic, or is there still some place for some, you know, organic acquisitions along the way?
Look, I think against the core strategy that we've articulated at this point in time, you should assume that we can grow that organically. Capital Partners is gonna be an organic evolution. The value add, last mile logistics strategy, again, just an extension of what we're already doing. We can scale our two listed REITs quite significantly without having to add to the cost base of the business, and they've both got funding firepower. I think if we talk about inorganic acquisitions in the presentation today. Look, I think on the longer term horizon, what we would say is we'd probably make an acquisition. We'd only consider an acquisition where it was value enhancing to the skills of the group and the capability of the group. It's really about trying to add more capability and more ability to grow funds.
You know, the great fund managers that we aspire to be one day, you know, we don't name names publicly, but, you know, we have internal plans around that. We have great ambition for the group. We will, at some point in the future, down the track, need to add to the capability of the group, beyond the core that we have today.
Okay. Thank you.
We'll be selective and opportunistic around that.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Di Pilla for closing remarks.
Look, financial year 2022 has been a great year. A lot of success, a lot of achievement. We're very excited and energized by the outlook in 2023, and just wanna thank everyone for their interest and taking time to join the call this morning. Thank you very much, and look forward to speaking to you over the next few days. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.