Thank you for standing by, and welcome to the MA Financial Group Market Update. 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'll 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. Julian Biggins, Joint CEO. Please go ahead.
Thank you, Darcy, and thank you everyone for joining the call this afternoon, and apologies we're a few minutes late. The reasons for the call today, we're very pleased to announce the strategic acquisition of IP Generation. It's a very complementary business for us. I've got a presentation in front of me, and I hope you do as well. I don't have it on the screen, as Claudia had advised you. If you want to just run along the slides with me, that'd be great, and I'll keep you on track in terms of where I'm talking to you. Yeah, really excited to make this acquisition. IP Generation is a AUD 2 billion real estate fund management business based out of Melbourne, and it's one of the leading—I think if not the leading—retail shopping centers indicators in the country.
IP Generation have approximately AUD 2 billion worth of shopping centers today, and they have a pretty track record as well across their investment track record in this year. We are really pleased about the quality of the platform. It takes our AUM to just in excess of AUD 12 billion, and importantly to me, it is really about scaling our real estate business. In the context of MA Financial, we obviously talk a lot about private credit, and we talk a lot about real estate. This puts our real estate asset fund management to just sort of around about AUD 8 billion, and that is spread across both debt and equity, alternative real estate, core real estate, and obviously real estate credit. We think it really balances out our business very well and sets us up very well with time in the cycle.
In terms of—I might just skip—I think I'm on slide three, but I might just go into the slide here around consideration. The consideration's about AUD 90 billion. Really pleasingly, it's being aligned with us. IP Generation and MA Financial, we're both founder-led businesses. They see the value in our business, and we're basically providing 100% consideration in share, and that shows you the confidence they've gained in the business, and we're pleased that they're on long-term escrows as well. The IP Generation business is really a business that's set about the people in that business. It's an indicator. They have a very high-quality team of individuals, and we're going on the journey in this together, so it's not a cash-out only for the sellers. I guess for the impact on MA Financial, we've looked at a lot of people on the line to be interested in.
We're buying the business at about an eight-time multiple. That's on a backward-looking 35/24 multiple for us. We think it's a fair multiple. It's got a lot of recurring income in that number, and we expect it to be broadly neutral this year, depending on how many funds are raised in the second half. Being a very transactional business in some ways, and depending on how active we are, how the communication will depend on what the ultimate result for us is, but on a pro forma basis, it will definitely be earnings accredited. We do like it. It's a great acquisition for us strategically. It's a great acquisition financially, and most importantly, I think, is that the people in the business were very aligned culturally and in terms of what success looks like. As always, with transactions like this, there's conditions precedent.
are a number of things that we need to receive, and we expect those to happen early in the second half of the year in terms of closing the deal. With that, I might just turn it forward to slide four and some of the strategic rationale. One thing that I've probably been chatting about for a little while—I think it's the consistent thread in this acquisition—is that the real estate market is really at a very positive point of cycle in terms of the underlying asset class. For us as a business, we've been looking at ways that we could increase our exposure to the real estate asset class and the funds management perspective.
Almost more importantly, for our investor base as well, we think that assets that are bought through this part of the cycle will generate very strong returns for investors and really set ourselves up very well as a funds management business. We think it is a great part of the cycle to be leaning into an acquisition like this. We also—we have talked about this a lot as well—the strength in having a fully integrated platform. That means managing every part of the asset management cycle, whether it is a regimation, there is property management, leasing, etc. Again, this business, IP Generation, coming together with our existing macro business and the real estate asset management business here in Sydney, will have a very integrated platform to offer to investors in terms of managing the assets and managing them very proactively.
As I said, it takes our AUM in real estate to about AUD 8 billion, 250 professionals, so a broad strength, a broad bench of capability in the business, covering investment management, development, leasing, all the things that are fundamental to creating returns for investors. Also, in terms of sectors, we obviously—maybe not obviously—but we do very well in the alternative real estate space. We are active in the core real estate space, but this really feeds off that area of the growth. I'll talk a bit today about the retail shopping centers as sort of a key focus for IP Generation and what they've done recently and sort of what we like about the core real estate space. That doesn't mean that this is solely about retail shopping centers. Essentially, IP Generation are looking for opportunistic ways to buy real estate and create value, similar to our DNA.
As we go through a cycle, we'll see that move between the asset classes as they become more or less attractive. As I said, a highly complementary high-growth real estate fund management business. Roughly AUD 2 billion. They've been growing very quickly, which I think is a good part of the cycle in terms of identifying opportunities and being able to basically not just lock down the opportunity, but also raise the capital to fund those assets. We'll talk about how the team's gone through, how the team goes about that a bit later. One thousand one hundred active investors. Again, we don't have a lot of overlap in terms of our distribution channels. This is, again, a really nice part of the difference between the two.
IP Generation has a stronger focus on the ultra-high net worth, on ultra-high net worth direct market, and also some of the profitable channels that we're less prevalent in. It couples together with our distribution channels to be very complimentary, where I don't think we'll see a lot of capitalisation, and you'll see a lot of—we'll be able to help each other get things done. I guess in saying that it's one business, but we'll be able to raise more money effectively for an opportunity in the future. In terms of cultural fit, I think this is probably the most important bit. As I've said a few times, we're both sort of founder-led businesses. We're both pretty entrepreneurial. We're both pretty nimble in the way we like to think about things, heavily analytical, and trying to find opportunistic sort of acquisitions for our clients.
We have a very similar DNA in that aspect, and we have a combination of both senior people in the business and also very hungry younger people as well. In terms of bringing the culture together, in terms of bringing both businesses together and just how we think about building businesses, we're very similar. I think this is a real—we're very excited about the level of energy that this is bringing our business, and also I think the IP Generation goes there as well. Just coming forward, and obviously, this is not a presentation without a few numbers. Just the increase in AUM, I think you can see through the, I guess, the color in the column chart, just the split between real estate and private credit, and I'm talking about equity and debt. There's a lot more balance in our business post this transaction.
I think also from that sort of direct high net worth channel, we also have a lot stronger focus. One slide just gives you a snapshot of the real estate fund management platform. Again, there is diversity in this post-settlement, so post maybe it is a couple of months' time. Over AUD 3 billion in retail, AUD 500 million in plain logistics and office, and then alternative real estate, again, one of our sort of powerhouses, AUD 1.8 billion in alternative real estate and AUD 3.3 billion in credit. This really puts us in a strong position to be a meaningful player in the real estate market in Australia. As I have mentioned a few times, the favorable positions in the retail sector at the moment, that is layering this through the sort of, I guess, real estate cycle full stop. Interest rates have probably rolled over.
We're also seeing elevated construction costs, meaning that the supply side is not really—it's quite difficult to be very little supply. What we do like about the retail shopping centers is they're very expensive asset class. They're underpinned by a lot of non-discretionary retailers. They're also very cash-generative. In terms of cash flow and generation of cash flow, they're very stable generators of cash. They don't have massive incentives. They do have Capex strategies that you do need to be mindful of, but they generate and generate quite a high level of cash on cash yields as some of the other sectors. Also large land components, so very large land holdings in well-located areas, in-build locations generally. Over time, we've been investing in land is a very sensible place to put your money. Consistent and highly resilient sales growth.
Obviously, supply side, we haven't seen a lot of shopping centers built in recent times. Retailing, underpinned by wage growth and population, those are some that we think are a good place to invest. E-commerce, we've really seen e-commerce through COVID, obviously, tested the boundaries of how far we push. We're comfortable that they have sort of shown its colors and were sustained and continue to grow, no doubt. There's definitely a place for bricks and mortar retailing as well. This really sort of sets us especially rebased, and we think it's now very much positioned for growth. Also, because supply is so constrained, we see population growth. One of the key metrics of retail is around sort of broad-based per capita.
Australia has generally had a low level of broad-based per capita, and we've seen that continuing to be a feature as population grows, coupled with lack of supply. We really do see the retail shopping center space is a very stable space to invest at the moment. Coming forward to slide eight, when you're thinking about IP Generation, Chris Lock founded this in 2019, really was about finding mispriced real estate opportunities. I think Chris and his team have a great approach to how do you think about underwriting the downside risk, but also thinking about how do you proactively create value. That's really what the journey they've been on. I think they've found that retail shopping centers have probably offered the best risk-return profile in the market, and that's why they've focused on the retail shopping centers as a strategy.
Again, growing their AUM, their funds are typically 12-10 single asset or two-asset funds, and they might have a five to a seven-year duration. They really go out and find specific assets, launch a fund around that asset, and then raise the capital. They have been very active in this space and been able to raise quite a bit of equity as the business has grown over time. I think the type of investor base that IP Generation focuses on and has focused on in the past is very much a trust and a word-of-mouth investor. It is those old kind of circles. That is something that we probably have not been as focused on as we have been more in this platform market and the independent financial funds market. That both wells how much their investor base supports the opportunities to invest with IP Generation.
They have a lot of rotation investors in their business as well over their journey, and we look forward to continuing on. I think one of the important things for our business and for the IP Generation business is, as part of this transaction, all of the leadership teams, they do not change within IP Generation. We have the same focus and style of investing, so not a lot of changes around that. Hopefully, we have broad-adventure strength. When you think about institutional capital, we have probably got a broad-adventure type of institutional capital as well as we need to grow the business going forward. Just coming forward to slide nine, and it is a photo. They are not always high quality, but they are there anyway. As you can see, Chris Lock, I have talked about a fair bit. David Bright is the Chairman of IP Generation Study.
He'll come in and take on Executive Chairman of core real estate. We've known David for a long time. He's a very senior leader in the real estate industry and has played some very big roles in Australia, but also globally, such as with IMG Real Estate. We've been someone of David's calibre, joining the business and playing that role in a leadership role, but also helping us open up networks and institutional capital for our businesses and brain. We also think another important thing about the acquisition was bringing the business together and strengthening that offering in the Melbourne market. Greg Barnes is one of the leaders in the retail shopping center space. He's been with Westfield for many, many years before he came out to impact investing. He worked both in Australia and in the U.S .
Greg will join us and be responsible for the management of the assets and the performance of the assets. Very similar to what Greg's doing today. When you think through what's important to an investor in generating returns in assets, Greg is one of the best in the industry in doing that. We really look forward to him coming on and focusing on our assets, focusing on the team as we build out that leasing and the operational side of managing the assets. Ingrid has been with Chris for a long time. Ingrid is the Chief Operating Officer of IP Generation. I think Ingrid is a very focused, investor-first sort of operating officer to really focus on the investor experience and how to make sure that that is seamless through the journey and someone putting money in and also obviously getting money out.
We really think this senior leadership team is first rate and really is that it is to our business as we move forward and manage this business. I will not spend a lot of time on the history of IP Generation. I will let you continue this. What I would say is that many of these assets we have looked at over the journey as they have come to market or they have been around for things to work. We have always liked the assets that IP Generation has brought. When you think about the value of the portfolio and what that does for its record going forward, we really like this portfolio and think that there is a lot of embedded value to the investor base in the portfolio.
Again, I'll leave you with slide 11 that shows the notice of the assets and then probably close out the full Q&A on slide 12. Clearly, this is a strategic acquisition for MA Financial and leveraging more into, I guess, the real estate into the real estate cycle and also really enhancing that sort of both investment capability and the capital-raising platform. I think this has not just come about overnight with knowing Chris and his team, David Bright for probably decades. This has been a conversation that's been ongoing for a couple of years, and we're really pleased to bring it to today and finally execute it. I mean, as I've said many times, I think it's a fantastic part in the cycle to be investing in real estate, and this will really let us accelerate that growth.
And really importantly, the IP Generation people, they're coming into our business. We're putting everyone together, and we're in this together. Through the 100% share deal, the long escrow is really fully aligned in terms of what we're trying to do here and aligns everyone that's in the transaction with the shareholders, which largely the people in the core line as well. We're very pleased with that alignment. In terms of Melbourne presence, this is important. We do have a Melbourne office. This would probably add another 30 people roughly to that Melbourne office. It gives us a lot of scale and also a lot of the network in Melbourne. It will just strengthen our presence in Melbourne, which is not insignificant to business. Finally, the financial metrics are very compelling for us. We're mindful of integration and that we need to do that very well.
And obviously, we're halfway through the year at the minute, so just in terms of timing, as we roll the clock forward, we think this will be materially appreciative as we get a full year's sort of contribution, and we think we get the growth right behind the business. With that, obviously, I've been working on it fair well, so I'm pretty excited about what we've done. We just look forward to sort of getting on and showing the market how we can accelerate our growth in the real estate market. With that, I'll pass back to the moderator, Darcy, for any questions.
Thank you. If you wish to ask a question, please press star one on your telephone 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 Tim Piper from UBS. Please go ahead.
Hey, good afternoon, Julian. Just firstly, around David, the business is generating, you've kind of given an FY24 number and a recurring revenue margin for the business. Obviously, it looks like transaction fees are generated as well. Can you just give us a sense? I mean, you're saying it's going to be EPS accretive on a pro forma basis for 2025. That would suggest that the AUD 11 million-AUD 12 million of EBITDA is kind of a sustainable number in the short term, i.e., there will be enough transaction and transaction revenues coming through to support that earnings base over the next year or two. Is that right?
Yeah, I think, Tim, I think the fair question. I think you can backstart what the EBITDA of the group is through just the volatiles and the price. For me, the large majority, and it might be 85% of the EBITDA, is largely recurring. It might be 80%-85% of that number. We have taken a pretty conservative view of you have to integrate the business. If we are sitting here in August and settling and what transactions that we undertake in between now and the end of the year to really drive that both revenue and EBITDA higher. Clearly, the team at IP Generation have been very active in the market of buying assets, and there is not a lot changing here. We are pursuing things in the market as we speak. When I think about rolling forward, it is just hard to know exactly what will happen in the next six months.
If you go a normal acquisition fee, you're probably net 1% as a fee from an acquisition on the asset base in these sort of funds. You can sort of work out what the sensitivity is to AUM growth for the longer term. I think one of the real benefits of this is actually having the two distribution teams that do not overlap each other and being able to take us into markets that we have not been into in terms of scale, which allows us to do it as well.
Yeah, okay, that makes sense. Just on the distribution, yeah, I mean, yeah, I mean, that makes sense. On the distribution side of things, I mean, these guys have obviously been extremely successful raising a lot of money through a pretty tough market over the last few years. You sort of called out Victoria centric and high net wealth. Can you maybe just dig into the relationships and the high-net-wealth side of the distribution of this business? Are there key people that hold these relationships? Just a bit more context around who they invest with, how they've been so successful.
Yeah, I think there'll be a number of people in the business that have brought those investor relations, and that's both Chris Monaghan and a couple of others. I think Chris has done a great job of building trust over a journey as being a very savvy investor, and they've run a very well-disciplined business in managing that investor base. I think when you think about the journey over the last sort of six, seven years, navigating through COVID and sort of the infrastructure environment has been a little bit tricky.
That being able to convince their investors on the concurring view of getting into these assets at a very good point in the cycle when many could not, it was very hard to raise capital for real estate, as you know. Now what you are seeing is the benefit of that track record and keep playing out. I think I said it on the call a bit earlier, this is very much a word-of-mouth network, and people tend to do different things, and not everyone joins your business, right, in terms of wanting to be invested in the business. There are some key reasons, but around people. What I would say is when you look at the structure of the deal, we have been very mindful of the differences of people businesses and put in place very long protection around sort of making sure we are aligned.
To perfectly be honest, both of us came out the same way. Chris and his and the leaders and all wanted to have shares in our business, but it's about the long term. It's not about cashing out.
Yep, sure. There's clearly some distribution and scale synergies here, but this is kind of a business being folded into MA Financial Group. Can we think about sort of some cost synergies as well associated with this deal?
I think there's both. There's opportunities, but there's also costs, right? I think one thing we're mindful of is, yeah, I think on a standalone basis, I'm saying it's going to be pro forma accretive as we get the sort of as we launch new funds. I think from an operational side, I think it enhances, it's very complementary between even retro IP Generation and our real estate investment business.
We do not have a lot of overlap in there because retro managed a lot of assets on a property management basis today. There are just very few places where we have a lot of it. I think we have strengthened the bench. I think distribution would then cannibalize each other, and I think it allows us to accelerate the growth for both entities, for both businesses' top line. There might be the opportunity, but if not, thank God, be focused on. I would be more focused on when we think about AUM and when we think about moving forward, how people with a real estate investment management business be the MA because we have such a broad advantage that can lean into the traditional market as well as the high net worth market as well as the channels that we already distribute private credit to.
Okay. Just one last one, if I can. Just there's also a comment that there's an additional earnout consideration on future performance milestones. I mean, assumedly these are closed-end, 10 closed-end syndicated funds. Is that right with what they're usually seven years or something like that? Are those performance milestones on the additional consideration? What are the metrics they're based on? Is it on growing AUM, or are they sort of earnings-based? Because assumedly there's some performance fees that may crystallize at the end of the term of some of these.
Yeah, I think some of that gets into the syndicate. I think there's a combination. The AUM growth is the understanding of businesses that are pre-emptive measures that sort of put some sort of hurdles around. We're very focused on how do you broaden in the right way. It's not about just an AUM chase. In terms of performance fees, they're very hard to value. A significant amount of performance fees, some of the historic stuff, we'll just leave to the sellers. Some of the later funds, we get the benefit of. That is a pretty detailed question. I'll just take that offline. Maybe Michael and Joel can have a chat to you about how that all works.
Sure. Thanks for taking the questions.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Joseph Licciardi from MST Financial. Please go ahead.
Hi, Julian. Thanks for taking my question. Just a couple of quick ones from me. Firstly, on the pipeline, I guess IP Generation have grown their AUM by around AUD 450 million per year on average for the last three years. Does the pipeline still look healthy? I guess following on from that, would you, I guess, be disappointed if you did not keep that level of growth up or exceed it over the next three years? Just following on from that, I guess, is there appetite from your current, I guess, distribution lines to add net flow to these new products or existing products? Thank you.
I think so in those layers, thanks, Larry. I think the layer is yes, there is a pipeline, very strong. I think we still see lots of sort of opportunities that real estate, whether it is whatever asset class is, is about. I think what you have got to find is vendors that are motivated by those terms, right? We think the pipeline is strong.
If you go to your second question, Joe, I think in terms of the way the distribution channel works, what I would say is the sentiment for real estate, and we've seen this through our alternative lens, has moved a little bit in the last sort of six months to be more pro sort of real assets than it was, say, twelve months ago. I think, as everyone's saying, in real estate that's been around it for a long time, the combination of sort of elevated construction costs, interest rates rolling over, can only be good for real estate, right? We think that continues to play through. We think probably as more competition comes in, the size of the assets that you've got to change sort of probably gets a bit bigger.
That is why when you look at a combined group, we have a very strong balance sheet, and we have obviously raised a lot of capital ourselves. We think we can put the combined group behind IP Generation and the broader real estate business in MA. That 450 is probably a sensible number, but there are a lot of variables that go into that, as you understand.
Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. We will now pause a moment to allow for any final questions to register. There are no further questions at this time. I will now hand back to Mr. Biggins for closing remarks.
Thank you, Darcy. Thank you for joining the call on short notice. Hopefully, you found it interesting, and we look forward to catching up with you in person as we go through the journey. Thank you. Good.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.