I'd now like to hand the conference over to Mr. David Di Pilla, Group Managing Director and Chief Executive Officer. Please go ahead.
Good morning, and thank you for joining today's call. With me on the call this morning are Group CFO, Will McMicking, and Group COO, Victoria Hardie. I'll start the presentation on slide five. FY 2026 was a year of disciplined execution against our key strategic priorities, leaving the business well-positioned for growth in FY 2027. Firstly, we delivered financial results in line with our guidance. Second, we made substantial progress on the strategic initiatives we outlined to simplify, scale, and strengthen the business. Over the last 12 months, we've sharpened our focus on the areas where we have the greatest competitive advantages and the strongest growth opportunities, improving both the quality of earnings and the scalability of the platform. Third, we've materially strengthened the balance sheet through capital recycling. HMC today has considerable balance sheet liquidity to accelerate organic growth across all our verticals.
Finally, we're entering FY 2027 with significant dry powder and fundraising momentum. We see multiple pathways to grow our fee-generating AUM and recurring earnings across each of our verticals. I'd now like to turn to the result itself on slide six. Operating EPS finished at AUD 0.404 for the year, in line with our guidance. Fee generating assets under management increased to AUD 16.9 billion, up 15% on FY 2025. This is predominantly underpinned by growth in institutional capital partnerships during the period. Recurring funds management revenue increased to AUD 165.5 million, up 22% on FY 2025, demonstrating strong growth in high quality recurring income, which we expect to accelerate in FY 2027. We also finished the year with a strengthened balance sheet. We now have liquidity and investment capacity with tangible assets and undrawn debt capacity of approximately AUD 1.9 billion.
Finally, the board has declared a final dividend of AUD 0.06 per share for the period, bringing the full-year dividend to AUD 0.12 per share. Turning now to slide seven, our strategy. This is the strategy we outlined in May, and I'm not going to spend a lot of time walking through it today because it remains unchanged and continues to underpin the way we're building HMC Capital. At its core, our purpose is simple, to create value in quality real assets through operational expertise, particularly where we see opportunities that are overlooked, underutilized, or can benefit from active management. The key message is that this strategy provides a repeatable framework for value creation by building scalable platforms which deliver high-quality recurring funds management earnings. Moving now to slide eight and progress on our strategic objectives. Starting with simplify.
During the period, we completed the wind-up of HMC Capital Partners and commenced the scale back of our U.S. digital operations, which is now reported as a discontinued operation. These actions have delivered run rate cost savings and released approximately AUD 150 million of capital to the balance sheet from HMCCP. On scale. In private credit, we secured AUD 1.35 billion of new institutional mandates, providing substantial dry powder to grow fee generating AUM. In real estate, we continue to grow our unlisted institutional AUM, supported by strong demand for retail development opportunities. In energy, we completed the AUD 603 million institutional partnership with KKR. This validates the quality of the platform and provides capital to fund future developments. In digital, we've taken important steps to recycle capital out of lower returning U.S. assets and into high-yielding opportunities within the Australian platform. Finally, on strengthen.
The steps taken this year have strengthened the balance sheet as we end the year with increased liquidity and support future growth. Importantly, we have over AUD 5 billion of AUM growth and growth opportunities across the platform and are ready to scale our verticals further. We're building a business driven by recurring management fees, supported by long-duration institutional capital and multiple growth platforms. Turning now to slide nine, which highlights the significant progress we've made in building HMC Capital into a scaled alternative asset manager over the last five years. Since 2021, fee generating AUM has grown from just over AUD 2 billion- AUD 17 billion, representing a compound growth rate of approximately 52% per annum. Over the same period, funds management revenue has increased at around 60% per annum. Importantly, the majority of that growth has been generated organically.
What's often overlooked is that three of our four verticals being digital, private credit, and energy, were only established over the last few years. A considerable portion of our effort during the past 18 months has been focused on institutionalizing and operationalizing these platforms, investing in people, systems, governance, and origination capability to create a scalable foundation. Today, we are seeing the benefits of that investment. Each platform is now well-positioned to attract capital and grow its recurring earnings through 2027 and beyond. 60% of our AUM is now held in perpetual vehicles, creating long-duration capital that underpins our earnings. Moving now to slide 10, our balance sheet. Over the last three years, we've used our balance sheet to seed and scale new platforms.
We've executed over AUD 3 billion of strategic acquisitions to establish our digital, private credit, and energy verticals, and in so doing, increased fee-generating AUM by AUD 8.8 billion, and added more than AUD 100 million per annum of funds management revenue. Minimal goodwill was paid to create these recurring earnings streams. Today, following the capital recycling achieved through the energy partnership and the wind-up of HMCCP, our balance sheet is back to AUD 500 million of undrawn debt capacity and AUD 1.4 billion of investments. We're now focused on driving higher returns from these balance sheet investments across our co-investments, our listed positions, and our Illuma Energy platform. We've identified a number of opportunities to recycle our capital into higher returning investments over the medium term. Now, let's put this into context.
The chart on this slide highlights this transition and demonstrates that by optimizing our balance sheet investments of approximately AUD 1.4 billion, we believe we could generate an additional AUD 25 million-AUD 50 million per annum of underlying earnings over time. As we think about it today, there are multiple pathways to achieve this, and as part of that, we expect the weighting towards principal investments to increase from around 35%- 50% as we recycle our balance sheet capital positions.
Moving to slide 11, which highlights why we have so much momentum coming into 2027 with over AUD 5 billion of growth opportunities across our verticals. In real estate, we have around AUD 2 billion of dry powder through our unlisted funds, HARP, HUG, LML, and our listed HDN. In digital, DigiCo is progressing 67 MW of new capacity across SYD1 and Adelaide 1, representing AUD 1.2 billion of near-term capital growth.
HMC is also progressing a further 1 GW of greenfield opportunities across digital infrastructure, leveraging our digital and energy expertise. In private credit, following the establishment of two institutional mandates in recent months, we now have over AUD 1 billion of investment capacity across our mandates and pooled funds. While the current dislocation in the residential real estate market is creating challenges for some managers, we believe it will create opportunities to deliver increased fund returns for our investors without materially increasing risk. We believe our platform is now market leading in terms of risk and asset management, independent valuations, and governance. In energy, we have committed equity for our first BESS project with around 2 GW of further developments moving towards FID over the next couple of years.
As you can see, each vertical has a clear pathway to grow, and we are well-positioned to execute across all of them. With that, I'll now hand over to Victoria to take us through the detail.
Thanks, David, and good morning. Starting with our real estate vertical on slide 13. This remains our largest and most established platform, contributing almost AUD 90 million in management and transaction fee revenue in FY 2026. Our unlisted real estate AUM grew 15% in FY 2026 to AUD 2.9 billion, underpinned by strong deployment across our retail property strategies. David already touched on our AUD 2 billion of growth opportunities in this vertical, providing a clear path to further scale the platform. A key differentiator for HMC's real estate platform is that we are not simply allocators of capital. We actively manage and develop assets to create value for our investors. This is evidenced by the performance track record of our existing unlisted funds, which have generated a 12% weighted average IRR since inception.
We also continue to assess selective asset sales and capital recycling opportunities across the listed platform to support a reduction in gearing, enhance balance sheet flexibility, and take advantage of value-accretive acquisitions. On HealthCo Healthcare & Wellness REIT, the dividend guidance has been reinstated at AUD 0.06 per share in FY 2027, subject to the Healthscope situation being resolved, which we expect in the coming weeks. Importantly, 100% of Healthscope rent has been paid up to and including August 2026. Turning to private credit on slide 14. Our private credit business grew 17% in FY 2026 to AUD 2.3 billion, driven by strong inflows from wholesale investors into both our pooled and direct funds. That is before the AUD 1.35 billion of institutional mandates we recently announced.
The financial result for FY 2026 for private credit was impacted by reduced loan origination volumes in the second half, reflecting a more disciplined approach to deployment in response to evolving market conditions. We have, however, seen a strong start to loan origination volumes this year. The business continues to focus on middle market CRE loans of AUD 20 million- AUD 250 million, primarily senior secured lending in the residential and industrial segments across the Sydney, Melbourne, Brisbane, and Gold Coast metro markets. We have a pipeline of over AUD 4 billion of deals under evaluation to support deployment in FY 2027 and are continuing to strengthen our origination capability, expanding into the New South Wales market, increasing our average loan sizes, and deepening our repeat borrower relationships. The quality of the book underpins continued growth in our private credit business.
Portfolio construction is deliberately diversified with the largest single exposure approximately 3% of the book. Institutional-grade risk management and governance, and the significant investment we have made in the platform, positions us to keep growing with discipline. Slide 15 demonstrates why this is now an institutional-grade platform. You can see the transformation between 2024 and 2026. Committed AUM has grown from AUD 1.5 billion- AUD 3.3 billion, and the proportion held in pooled funds and mandates has increased from 49%- 85%. We have also introduced institutional mandates, a majority independent trustee board, quarterly independent valuations, and dynamic AASB 9 provisioning, none of which were in place two years ago. Supporting this is a market-leading team of more than 70 specialists, most drawn from senior banking backgrounds. Our key leaders in credit, property risk, and lending bring an institutional approach developed over long careers at the major banks.
Our property risk team is, in our view, best in market with in-house valuers, construction managers, and quantity surveyors that most managers simply do not have. We also provision for credit losses like a bank does, with EY conducting quarterly independent reviews of provisioning and carrying values. The track record of our flagship core fund speaks for itself, returning 8.7% over the last 12 months, and with zero principal losses since inception. This is now a scalable institutional-grade platform with the capability to attract and retain global capital, and you can see the proof of that on slide 16 with AUD 1.35 billion of new institutional mandates from global investors, as previously announced in June. These mandates will take our AUM to AUD 3.3 billion once deployed, representing growth of 120% over the past two years.
These mandates include a strategic partnership with TPG Credit, one of the largest and most experienced credit investors globally. The partnership was established following TPG's rigorous manager selection and due diligence process in Australia, and the partnership is focused on larger opportunities, having been seeded with AUD 375 million of loans. Importantly, our origination pipeline is building to support these mandates and to seed new ones, and we expect institutional capital to represent a growing share of AUM over the medium term. Turning to digital infrastructure on slide 17. DGT delivered a strong FY 2026 result with underlying EBITDA of AUD 127 million, ahead of the AUD 125 million guidance, and generating AUD 35 million of management fee revenue for HMC. Simon Mitchell and Ralph Goninan were last week appointed as co-heads of DGT with both having played critical roles leading the development and execution of DGT's refreshed strategy.
Alongside this, Damian Secen has been appointed as HMC's Managing Director, Infrastructure, covering both our digital and energy verticals. The DGT strategy update announced in May is now largely progressed with the sale of Chicago and LAX well advanced. In addition, we have recently reached agreement with our tenant at Dallas and Kansas to extend the lease terms to 2036. We are now focusing on Australia, where DGT has operational and development capabilities with a team of over 100 people.
The expansion of our marquee SYD1 asset is well underway. The first 20-MW deployment has been completed on time and budget. DGT has executed LOIs for the remaining 52 MW of capacity with high-quality customers, and the expansion has been accelerated with a targeted delivery over FY 2027 and 2028. The sale of U.S. assets will increase DGT's liquidity to around AUD 1.2 billion, which fully funds the highly accretive SYD1 expansion.
DGT is also progressing the Adelaide1 15-MW brownfield expansion underpinned by advanced customer discussions. Together, these developments support a pathway to a stabilized Australian platform EBITDA of AUD 250 million for DGT once the SYD1 and Adelaide1 expansions reach stabilized occupancy and billing. The digital platform continues to benefit from powerful mega trends with AI, cloud migration, and data growth driving sustained demand for high-quality power-backed infrastructure and supporting future growth in digital AUM. In Australia, the ability to originate, develop, and operate power-enabled sites responsibly with a clear focus on community engagement and social license is becoming a key differentiator. HMC is assessing a pipeline of over one gigawatt of greenfield opportunities where we can bring together development expertise, operational capability, and energy market insights from across the group. Turning now to energy on slide 18.
Through Illuma Energy, we've now established a scaled, integrated renewables and storage platform, a top 10 platform in the NEM with AUD 1.5 billion of AUM across wind, solar, and battery storage. Importantly, we've transitioned energy from balance sheet seeding to institutional capital with a development pipeline and multiple pathways to realize value over time. The platform has 652 MW of operating capacity, of which 85% is contracted, and a substantial development pipeline of around 5 GW across 19 projects. Within that, we have roughly 2 GW of near-term projects progressing towards final investment decision, including the Moorabool, Molong, Cobbora, and Kentbruck projects. The introduction of institutional capital gives us a capital-like growth pathway while preserving HMC's exposure to platform value creation.
Through our institutional partnership, Illuma has secured an AUD 248 million capital commitment to fund up to 90% of the equity component of the platform's first BESS project. HMC's invested capital has reduced to around AUD 200 million while retaining the majority of future upside. There are multiple pathways to realize value in the platform, including the introduction of additional third-party capital into the platform via syndication or to fund further growth, and a clear AUM pathway of AUD 3 billion plus from near-term projects. Slide 19 sets out Illuma's near-term development projects. We are actively progressing these projects across batteries and wind, with each advancing well through land approvals, grid connection, and offtake. Importantly, we expect these projects to deliver 20%+ target returns on our invested capital. Finally, on sustainability on slide 20, which remains core to how we operate.
As the group has expanded, we are aligning our sustainability framework with our broader platform. During the year, we reviewed our priorities to reflect the new Illuma Energy and digital verticals, and this is informing the evolution of our strategy and targets with a further update expected later this year. We made solid progress across all three pillars. From an environmental perspective, our Illuma Energy partnership is supporting the decarbonization of the NEM, and two of our real estate developments achieved four-star Green Star certifications. We continue to focus on social and community impact with the HMC Capital Foundation making grants to nine organizations, including six scholarships supporting First Nations and regional students. Gender diversity improved to 67% female representation for our independent board director positions across the group, and we maintained our MSCI ESG rating of A.
It is an ongoing priority, and we remain committed to pursuing growth that supports positive long-term impacts for all stakeholders. I will now hand to Will McMicking to discuss our financial results.
Thanks, Victoria. Turning now to the earnings summary on slide 22. For FY 2026, HMC delivered operating earnings before tax of AUD 166.8 million or AUD 0.404 per share, which was in line with guidance. Adjusted for the discontinued operations of StratCap U.S.A., the group recorded funds management EBITDA of AUD 88.5 million, and operating earnings increased to AUD 0.437 per share. Management fee revenue increased 23% to AUD 159.3 million, driven by fee earning AUM growth in real estate and a full year contribution from digital. Transaction and performance revenue reduced to AUD 41.2 million, reflecting the absence of larger transaction revenue that was recorded in FY 2025. Employee expenses were stable year-on-year, while corporate expenses increased modestly as we continued to invest in platform capability.
Distribution income declined, reflecting no distributions received from HCW for the period, while investments comprised an unrealized fair value gain from the energy platform of AUD 146 million, partly offset by a fair value loss in the HMC Capital Partners fund of AUD 55 million. Interest expenses increased to AUD 22.8 million due to senior debt drawn to warehouse energy transition assets. A final dividend of AUD 0.06 per share has been declared, bringing total FY 2026 dividends to AUD 0.12. Turning to the balance sheet on slide 23. Net tangible assets at 30 June were AUD 1.2 billion or AUD 2.95 per share. Following the completion of the energy sell down, HMC's investment in the platform has moved to an equity accounted investment, while the HMC Capital Partners in specie return has transitioned to a direct investment held at fair value following the wind up of the fund.
Gearing was 10.7% as at June 26, which decreased compared to December 25 with the completion of the energy transaction. Moving to capital management on slide 24. Drawn debt of AUD 219.5 million is substantially lower than December 25, leaving more than AUD 500 million in cash and undrawn debt, which when combined with AUD 1.4 billion of tangible balance sheet assets positions HMC well into FY 2027. I will now hand it to David.
Thanks, Will. Now turning to the outlook for financial year 2027.
We are moving to financial year 2027 with real momentum, a strong balance sheet, and a platform with dry powder for earnings growth. We are guiding to financial year 2027 underlying earnings of at least AUD 0.35 per share, and that is a 16% year-on-year growth. However, if we exclude the energy transition fee capital charge of AUD 35 million earned in financial year 2026, this represents 60% growth year-on-year. That step up is underpinned by three drivers. One, more than 30% in recurring funds management revenue driven by our digital and private credit platforms. Two, a 35% increase in co-investment distributions from DGT, HCW, and HDN. Finally, fixed cost leverage, as we expect to grow our recurring revenues faster than the cost base. Importantly, this guidance excludes any upside from capital recycling on our balance sheet, large transactions, and one-off gains and investment income on existing principal investments.
We also expect 100% conversion of underlying earnings guidance to cash in FY 2027, as non-cash adjustment arrangements for management fees cease. On the dividend, we are guiding to AUD 0.15 per share, up 25% on FY 2026, supported by the growth in recurring earnings and consistent with our strategy of largely reinvesting retained earnings into accretive growth opportunities. I would like to thank everyone for joining, and I will now hand the call back to the operator for Q&A.
Thank you. If you would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you would like to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Solomon Zhang from UBS. Please go ahead.
Morning, David and team. Thanks for your time. Just interested in your feedback just on your private credit funds, particularly just on the pooled side. We are seeing a redemption request lift. What have you sort of assumed in your 2027 guidance around the trajectory of that component, noting that you have obviously got strong inflows coming through from the insta side and the deployment of that mandate?
As I said earlier, our credit standards across the group are in really good shape. We have a really good team on the ground dealing with most of our pooled fund wholesale investors. We stay close to them. We communicate regularly. We have seen a small amount of redemption activity in the last few months, but when we offset that against inflows, it is quite negligible.
Great. So you are still seeing net inflows, I take it, from your comment?
There were inflows this month, and so they largely offset the outflows.
Great. Maybe just a question for Will. Just taking a look at page 30 in the earnings by division. Just on the energy transition line, it does not seem like there is any EBITDA coming through, any debt costs from the platform. Just wanted to confirm, are those excluded from your measure of underlying earnings?
Yeah. So the gain of AUD 146 million there, that was net off the platform operating cash flows and financing. So we ended up booking a fair value gain on the assets of about AUD 200 million after transaction costs, so we effectively valued the platform EV at AUD 1.2 billion.
Right. Just in terms of contribution into 2027, just on the operating side, post interest expense, could you just give us a little bit of a steer there?
Yeah. We are really trying to focus the attention on underlying earnings, which is the funds management EBITDA cash distributions, and then any realized gains from principal investments. We will probably just leave it at that. As Vic sort of touched on, the platform is delivering well, but that is very much a long-term investment. So, it will be realized in the future, and that is when it will go into earnings.
Thanks, all.
Thank you. Your next question comes from Simon Chan from Morgan Stanley. Please go ahead.
Hey, good day, guys. Hey, David, you spent a bit of time talking about optimizing returns this morning on from balance sheet investment, and I think you threw out the number out there, AUD 25 million- AUD 50 million on a per annum basis from optimizing returns. Can you just give me some insights into what you mean there? Is this simply putting stuff, putting your money into higher yielding investments, yielding 9% rather than 6%, and hence you get the AUD 25 million- AUD 50 million a year? Or is it more, "Hey, we're going to get the transaction machine going and we're going to do deals that will generate AUD 25 million- AUD 50 million a year of our transaction profits?
You've asked two questions in one, and I'll break that up into two questions, Simon. You're very insightful in terms of the comment. It's the former. It's basically generating a better return on our capital. Yes, you're correct. Recycling from lower yielding investments into higher yielding returns. That's where the comment around the AUD 25 million- AUD 50 million of increased earnings comes from. It's really just recycling into higher yielding returns. Then in terms of the guidance, I was very clear and explicit. The guidance does not include any transaction fees.
Great. That's very clear. I've just got a follow-up to the previous chap's question to Will about energy. Hey, Will, am I reading you right to conclude that Illuma Energy is unlikely to generate any EBITDA contribution in FY 2026, then? Sorry, FY 2027.
No, that's not correct. I guess what we're saying is all our equity investments, we include cash distributions in our underlying earnings. That's a long-term investment. It's planning to invest, not declare dividends. So, as and when those investments are realized in the future, that's when it'll go into earnings. But no, that's profitable.
Right. Is it possible that if the Moorabool battery, a decision gets made over the next 12 months over the course of FY 2027, for example, if you decide to sell the project, sell the land, that could contribute to HMC Group profit?
Yes. The definition is if we are realizing net cash gains, then we will book it into underlying profits.
Excellent. Just my final question. I think in Victoria's comments, she talked about slowdown of private credit in the second half. Can you just give me some insight into what happened there? Is it just you guys hitting the brakes or was it a slowdown in the general market conditions?
It was a disciplined decision and a deliberate one to slow down on the lending side, just in response to the evolving market conditions that we were seeing following interest rate hikes and the budget. So it was a risk management strategy. But as I said in my remarks, we have seen an uptick in origination volumes in the beginning of FY 2027.
What is average LVR across the platform now?
I think we would say that we quote within the pooled fund. That is probably the best way to look at it, where we have got the bulk of our exposures. The way the pooled fund works is it has an average target of 70%, but that is what we aspire to or that is what we aim for. No more than 70%. But it is running today in the mid-60s on average. It is actually 58%, actually, on average. So it is lower than that actual. So today, below 60%, but the average that the pooled fund targets is 70%.
That is very good. Thanks very much, guys. Cheers.
Thank you. Your next question comes from Ben Brayshaw from Barrenjoey. Please go ahead.
Good morning, David and Will. Thanks for the presentation. Could I just clarify, and I think I know the answer because you discussed it on a couple of occasions. But does guidance include any allowance for unrealized fair value gains on investment assets?
You are correct, Ben. It does not.
We were very clear. No. The guidance is based on cash recurring earnings.
Great. Could you just talk about the situation with StratCap? How do you see that, I guess, evolving? Is the objective there to undertake a sale of the business or is it more a case of pursuing an orderly wind down?
Look, I think based on the evaluation we have undertaken, we think the most cost-effective way for us as a group is just to go down the path of a more orderly wind down. You will see that reflected in the numbers. We think that probably there will be a bit of cost associated with that wind down in 2027 and it will be largely gone in 2028. What we will keep in the U.S. is just a small representative office there going forward to keep some optionality.
Great. Thanks for your time, David.
Thank you. Your next question comes from Richard Jones from JPMorgan. Please go ahead.
Thanks. Just trying to clarify just in your underlying earnings, I think you have cleared your unrealized gains and losses are stripped out. Just in slide 30, the AUD 13.6 million loss in corporate, is that StratCap predominantly?
No, that was balance sheet investments in ASX equities.
Okay.
Balance sheet investments.
Land—
Yep
Land lease. Okay.
Yeah.
What is the net interest on unrealized principal investments?
Yeah. The majority of the interest. Keep in mind, we had net cash at June last year. The main investment that we undertook during the year was energy transition. Yeah, assume all the interest was attributable to debt drawn to warehouse that asset and hold that AUD 200 million investment today.
Okay. Thank you. Can you just compare the—
Richard, before you move on, that was obviously going through the numbers in 2026. That won't be there in 2027. That's, again, another big factor in terms of why you're seeing such big uplift in earnings.
Yep. Just the basis for the Illuma Energy valuation at AUD 1.2 billion, and obviously associated fair value adjustment. How does that compare with the AUD 1.5 billion AUM that you quote?
Yeah. All our equity investments, we basically adopt AASB total assets. The AASB accounting for energy has it at AUD 1.5 billion, which basically uplifts derivatives contracts that that has within the business. Yeah, I guess they're two slightly different numbers, but that's essentially it.
The balance sheet is AUD 1.2 billion.
Okay. Can I ask about tax? Everything seems to be quoted on a pre-tax basis. Is the intention to move to a post-tax underlying earnings in the future and can you maybe touch on what the tax looks like, a tax benefit in 2026 was and, I guess, clarify your tax status around future losses to offset underlying earnings?
Yeah. We still have a material historical tax loss balance, which is driven from the origins of the group as a developer. We're still using those losses, and I guess, we'd guide to no cash tax in 2027, which is why we still report our earnings on a pre-tax basis. I guess we'll keep updating the market as we go. But yeah, you can assume no cash tax in 2027 and that tax benefit in 2026 was as a result of holding the energy assets for 12 months. As a development business, there was some large tax depreciation that essentially topped up the losses.
Thanks, Will. Thanks, David.
Thanks, Richard.
Thank you. Your next question comes from David Pobucky from Macquarie Group. Please go ahead.
Morning, David, Victoria, and Will. Thanks for taking my questions. Just one follow-up on the expectation that the weighting to principal investments increases from 35% - 50% over time. Are you able to talk a bit more about some of the opportunities you're seeing near term to recycle your balance sheet capital positions?
David, if we wanted to talk about those, we would have highlighted them in the result. I think what we are suggesting is that as has always been the case, HMC is the kind of group that likes choppy, difficult markets. We have got a strong balance sheet going into a choppy, difficult market, and we think that is going to present some really interesting opportunities, and there is a number of those under evaluation at the moment. So we feel emboldened by the outlook, and we feel emboldened by the strength of the balance sheet going into 2027. So it will not be necessarily something that we are going to telegraph out there, but we feel as though we have got really good opportunity to recycle the capital.
Yeah. Just a second question on your distribution guidance of AUD 0.15 per share, which is up on the AUD 0.12 in FY 2026. If you could please just talk to the distribution policy beyond FY 2027 and how you think about balancing capital for growth versus paying distributions.
Look, I think we have always been of the view that we want to size our distribution based on our underlying cash generation and our cash earnings. What you will see today is a very clear statement in the earnings outlook that we believe that there will be, with the earnings that we are guiding the market to today, there will be a very high level of cash conversion in that, and therefore, we have decided to lift the distribution going into 2027 to reflect that strong cash conversion.
Excellent. Just my last one on cost savings. I think you previously noted about AUD 15 million of cost savings from the digital platform. So if you could please just talk a bit more about, and if there are additional cost savings and cost out expected in FY 2027 versus what was delivered in the FY 2026 result.
Yeah. I would say that what we articulated, interestingly enough, on the day of your conference earlier in May, we flagged a range of cost savings that we were articulating at the time with primarily focused in the digital business. That was all completed and executed in FY 2026. If you look at the guidance, going into 2027, there is a very clear point there on the guidance outlook slide on 2026, where we have said we expect fixed cost leverage going into this year. With cost efficiencies, we believe that our earnings and revenue growth will grow. Our revenue will grow faster than our costs, quite materially, and that will give us some level of further outperformance. I think the way to potentially explain that is three new verticals coming onto the platform, two of which were infrastructure-like.
There was probably a level of cost that the group absorbed through the course of 2026 to integrate those businesses. We feel as though going into 2027, there will be some natural efficiencies that we will be able to take out of the group, as we absorb those businesses and just get some run rate efficiencies going forward. So we are assuming that we are going to be able to hold costs where they are or probably slightly reduce them going into 2027. And that is what is giving us—
Thank you.
—our fixed cost leverage.
Thank you. The next question is from Tom Bodor from Jarden. Please go ahead.
Good morning, David, Victoria, and Will. Just be interested in, back to slide 10, how you are reducing your co-investment stakes relative to principal investments. Just be interested in your appetite to sell down your cornerstone stakes in DGT, HCW, and HDN over time. The second question is, if you sell down below NTA, does that get recorded as a negative contributor to underlying EPS?
What I would say to you is they are strategic stakes that we have taken. We are not going to call out what we are thinking or what we are planning to do around any of that. We see still a lot of upside in DGT. As we flagged at the result, there is very significant LOIs in a very advanced state. Let us let that play out over time. HCW, again, we are close to resolution on the Healthscope situation. Again, just there is fundamentally plenty of value in both of those entities and plenty of upside over the near term. Are we a holder at the levels that we are holding at the moment over 20% in both? Probably not. But we are not flagging or telegraphing anything in regard to those at this point in time. HDN, we are happy with our level of holding.
At the moment, we are also holding nearly AUD 150 million of listed investments on the balance sheet post the windup of Capital Partners. We have got a number of different options, and I flagged it pretty clearly. We have got a number of different ways that we are thinking about recycling that capital. I am not going to telegraph any sort of moves that the group is going to make at this point in regard to its co-investment positions. But we would not have put that slide forward if we did not have a very clear path and a clear view. We see good upside in those two stocks, and we will just be sensible in the way we go about that transition.
Thanks. The second part of my question, if you did sell something below NTA, would that be included in underlying EPS as a negative?
Yeah, that is right, Tom.
Okay, thanks.
Thank you. Once again, if you would like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from James Druce from CLSA. Please go ahead.
Yeah. Hi, good morning. Just around sort of look-through leverage, how do we think about that? I think there's around AUD 2 billion worth of sort of look-through liabilities. I know a lot of it's non-recourse. Do you have a look-through gearing number that you try and manage, or how do you think about that?
All the debt in the funds is non-recourse, just to clarify. We do manage it, but keep in mind this is a very diversified group, very diversified strategies. I guess there's no one-size-fits-all, but of course, it's very closely managed across the group.
Look, to answer that question, just to basically give you a very direct answer, 67% of the funds we manage in this group are in open-ended permanent capital structures. Our underlying businesses are high quality, real asset-based businesses that have an appropriate level of gearing in each of them. At the end of the day, the focus that we as a manager and as a listed group think about very carefully is an appropriate and prudent level of gearing at the HMC Capital level. If you look at it today, we'll articulate the net debt number today. If you take into account the liquid investments that we're holding on the balance sheet, our leverage and our gearing at the HMC Capital level is almost zero. We have plenty of financial flexibility and firepower going forward. We think our balance sheet is in very robust shape.
Look-through leverage is not a—
Okay.
—not something that we should be really focused on in this group.
Yeah. I suppose what I am trying to get at is that a lot of it sort of sits off the balance sheet. I appreciate the listed funds are pretty lowly geared, but the energy business is pretty highly geared, I suppose. I am just trying to—
No, that is not. It is quite the opposite. It is an appropriate level of gearing for an infrastructure business with high-quality underlying cash flows. It has now got a major capital partnership with KKR, who have committed to fund future growth opportunities.
Okay. Then just on—
Where was the other look-through gearing that you are worried about?
No, no. I am just trying to figure out how you guys think about that.
We think about it a lot, and we are very prudent. We think about it a lot, and we have got a strong balance sheet.
Okay. Maybe just on AUM growth for this year. Just thinking about the real estate and private credit. Obviously, the mandates are coming through. Just in terms of growth ex mandates, how are we thinking about that? Just real estate, anything. What sort of growth are you expecting from AUM in that business?
What we have called out in real estate is that if you go through HARP , HUG, and LML , we have got the vast majority of the AUD 2 billion comes through those, and deployment of those mandates. Then there is some development CapEx that comes through HDN.
But the vast majority of it comes through our institutional mandates in private credit. We talked about the TPG Credit mandate that we have just secured, and we have also got another mandate that we are not referencing the party, but it is a major global investor as well. So we have got over AUD 1 billion of dry powder through mandates in private credit. What we are seeing is the fact that we have invested heavily in that platform. We have been prudent. We have got a clean book. Our underwriting standards are high.
As a result of that, we are actively progressing a number of other institutional mandates as well, in the private credit space. So we feel really quite optimistic about the outlook in the sense that, we think the market disruption and dislocation is potentially positive for our business.
Okay. Thank you.
Thank you. Your next question comes from Simon Fitzgerald from Jefferies. Please go ahead.
Hi there. Thank you for taking my question. Got a really short one here. Just on the private credit mandate. I was just wondering firstly about the seed loans in terms of what asset classes they might belong to, and then, hoping you can give us a little bit of color in terms of the AUD 1 billion of dry powder. What sort of asset classes do you think you would attribute that to, or in terms of opportunities outside of real estate?
The business has historically been focused on CRE mid-market. As Victoria said in the presentation, loans up to AUD 250 million. The new mandate we've secured is really consistent with the strategy. It's consistent with what we've always done. But it's really looking at larger opportunities. The seed loans that went in were existing loans within the ecosystem that we'd secured and were about to secure. And they were loans on average of over AUD 100 million, AUD 150 million sizes, in terms of the seed loans. We've seeded it with a small number of larger loans and that's where we'll continue to deploy through those mandates.
And those seed loans are mostly real estate. Would that be correct?
The business has continued to stick to its strategy, which has been CRE. That's where we see—
Okay.
—dislocation. That's what we'll continue to execute into at this point.
Great. Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Di Pilla for any closing remarks.
We just want to thank everyone for joining the call, and we look forward to catching up with you over the coming days. Thank you.