HMC Capital hits growth straps in alternative markets on road to $10bn

HMC Capital, which is backed by some of the country’s richest families, could take its healthcare real estate strategy global as it sees demand from big institutions in the area.

Funds manager HMC Capital has flagged the potential for a dramatic expansion of its funds empire beyond $8.1bn with the potential for further growth of its last mile logistics and healthcare real estate holdings, with a shift into global markets on the cards in the latter area.

The company — which is backed by some of the country’s richest families, including Chemist Warehouse millionaire Jack Gance, Melbourne billionaire Marc Besen and the owners of the Sptotlight Group — has received heavy demand for its proposed unlisted healthcare property fund focused on Australia. It believes there is a gap in the market for the strategy that could see it also taken offshore.

HMC chief executive David Di Pilla flagged the potential for growth across the business due to market dislocation and big investors shifting away from traditional property assets into alternative areas.

“Tough market conditions play into our hands,” he said. “We expect the back half of this year will throw up a lot of very interesting opportunities for the last mile logistics strategy.”

HMC is backing its ability to pull off large, complex transactions and grow its funds despite the subdued M&A and capital markets climate.

Its profit dropped from $103.7m to $83.3m last year but funds management revenue hit $69.7m, with recurring revenue up 72 per cent. It paid a full-year dividend of 12c per security, in-line with fiscal 2023 guidance.

The real driver of its performance was a 40 per cent growth in assets under management by to $8.1bn. This included setting up a private equity fund which has grown to $400m, and houses a stake in Lendlease, where HMC is pushing for faster changes to turn that company around.

It also set up a $800m unlisted institutional fund in last mile logistics real estate in June and won a major commitment from Funds SA. An unlisted $1.1bn healthcare and life sciences property fund has secured $250m of institutional backing and is on track to close the last tranche of the $1.2bn Healthscope portfolio next month.

HMC said it was well positioned to deliver strong underlying earnings growth this financial year with distribution per security guidance of 12c flat on last year. In a bullish update, HMC said it was assessing multiple opportunities to grow funds and diversify into new asset classes.

Mr Di Pilla said the company had made significant progress executing on its strategy of building a more sophisticated and diversified business focused on alternative assets, and was unlike traditional property landlords.

“We established three major unlisted growth platforms, raised about $1.5bn of new equity and grew funds under management by 40 per cent,” he said. “Our ability to execute large, complex transactions and use our balance sheet to take advantage of strategic opportunities has enabled HMC to maintain its strong momentum in a more challenging capital markets environment.”

Although they are trading at discounts, Mr Di Pilla said the company’s daily needs and healthcare REITs delivered strong results and were successfully passing through higher property and interest costs

The company flagged growth in its existing areas would take it to a$10bn funds target which it will hit by year end with a new longer term target of $20bn unveiled. Mr Di Pilla said the last mile retail logistics strategy was “scalable” and could evolve into a series of funds of up to $1bn per annum being raised.

“We have an emerging pipeline of attractive opportunities, our group’s core relationships and capability in repositioning these assets and finally, the growing megatrend and demand for last mile retail logistics assets,” he said.

Mr Di Pilla said there was also a “big opportunity” to grow healthcare locally via new major greenfield development deals.

“We have already secured a number of strategic sites for future private hospital healthcare developments, which could add another $1bn-plus of funds under management in our unlisted healthcare fund,” he said.

Big institutions interested in the unlisted healthcare fund have also expressed interest in funding developments, whileMr Di Pilla said any offshore move would focus on OECD countries where the company could add value.

“We do see a big, scalable opportunity that will set us apart,” he said.

HMC gave flat distribution guidance as it reinvests retained earnings into high returning growth plays, and it has $1.1bn of firepower to back its moves.

UBS analyst Grant McCasker said that HMC had a scalable platform, substantial growth aspirations and 20 per cent-plus return on equity ambitions, and investors were willing to look through short-term earnings volatility.

HMC shares were up 5.4 per cent to $5.50 in a higher market just after lunchtime on Wednesday.