Full Year 2026 Qualitas Ltd Earnings Call
Speaker #2: Thank you for standing by, and welcome to the Qualitas Limited FY26 results briefing. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session.
Speaker #2: If you wish to ask a question, you will need to press the star key, followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Andrew Schwartz, Group Managing Director and Co-Founder.
Speaker #2: Please go ahead.
Speaker #3: Good morning, everyone, and thank you for joining us for the Qualitas Full Year 2026 results. My name is Andrew Schwartz, Group Managing Director and Co-Founder of Qualitas.
Speaker #3: Presenting with me today is Mark Fisher, our Global Head of Real Estate and Co-Founder, and Philip Dahlman, our Group Chief Financial Officer. Before we begin today, I would like to acknowledge the traditional custodians of the land from which I'm presenting, the Wurundjeri people of the Kulin Nation.
Speaker #1: I also acknowledge the traditional custodians of the lands from where you're participating today . And we pay our respects to their elders , past and present Turning to today's agenda , I'll begin with the highlights of our FY 26 result .
Speaker #1: Mark will then take you through our funds management platform and the market backdrop. Philip will then walk you through the financial results in detail.
Speaker #1: And I'll return to close with our outlook and FY27 guidance. We'll take questions at the end. So let me start with the highlights.
Speaker #1: FY26 was defined by record deployment. It was a step change in the quality and stability of our earnings base and our ability to achieve higher operating margins.
Speaker #1: We grew by deploying more capital through larger investments and funds. Specifically, the following numbers are noteworthy: record deployment of $6.5 billion, up 42% on last year.
Speaker #1: That contributed to $3.1 billion in net deployment . Underpinning strong base management fees and performance fee growth into FY 27 . Our early FY 27 momentum is strong , with $1.1 billion in investments already approved by our investment committee or closed as of today .
Speaker #1: That compares to approximately $170 million at the same time last year. Capital deployed and available for deployment is up 21%. Growth is driven predominantly by institutional capital.
Speaker #1: In this regard, Australia continues to be a destination considered favourably for commercial real estate credit because the risk-adjusted returns are compelling. Qualitas is well established as a manager of choice in this space. Performance fees are also becoming a larger and more predictable part of our earnings. Two of our large credit funds are maturing post balance date.
Speaker #1: We received $19 million in cash from previously accrued performance fees. Combining this amount with the $12 million we received in the first half from performance fees...
Speaker #1: We have now received $31 million in cash from performance fees over the last 12 months to August 2026 , and we have exciting new growth levers Firstly , in June , we established Qualitas Europe through the acquisition of UK based stars Real Estate , opening our first offshore office .
Speaker #1: This expands our addressable market by roughly fivefold Secondly , Arch Finance is gaining momentum into FY 27 . And finally , our build to rent equity strategy delivered $1 million in net profit before tax , more than doubling its last year contribution .
Speaker #1: As of today, our credit portfolio is performing well, with no impairments and no formal enforcement activity. That is something we are extremely proud of. These FY26 results highlight what patient, disciplined capital can do.
Speaker #1: The operating leverage in this platform is clearly visible And accelerating . On the back of that strength . And with continued momentum , we are providing FY 27 net profit before tax guidance of 74 to $80 million , an increase of approximately 17% to 26% on FY 26 .
Speaker #1: Turning to slide seven. This slide sets out the earnings picture, which highlights consistent growth across fee-related earnings. We're also experiencing significant margin expansion over the last five years.
Speaker #1: Base management and transaction fees have grown consistently and strongly , up 27% and 28% , respectively , from prior periods . These are our core reoccurring earnings base .
Speaker #1: We recently upgraded our Australian Funds Management EBITDA margin target from above 50% to above 60%. I'm pleased to report we are already at 54%, up from 52% last year. That is driven mainly by larger investments. All of this has been achieved before we rolled out our proprietary AI investment platform and achieved efficiency gains.
Speaker #1: We further expect from this initiative . We have declared a final dividend of 7.7 $0.05 per share , and this brings our total FY 26 fully franked dividend of 11.2 $0.05 per share .
Speaker #1: An increase of 13% on last year. We are demonstrating strong earnings growth and growing dividends. Our growth comes down to two things: institutional capital and borrowers who keep coming back to us because they know we can deliver at scale. Right now, certainty of financing is everything.
Speaker #1: One of our observations are present is that liquidity appears to be leaving the market . Some financiers appear to be pulling back However , it is important for borrowers to have capital certainty due to the fact that our funds are mainly closed , ended and backed by institutional capital We face minimal redemption pressure , which is a genuine competitive advantage , and the numbers tell that story Fee earning Fum grew 36% to $11.9 billion .
Speaker #1: We have $2.4 billion of available capital for deployment, taking total capital deployed and available to $14.3 billion, up 21% on last year.
Speaker #1: 72% of our $6.5 billion deployment came from repeat borrowers, and 29% from follow-on investments. These investments require significantly less origination effort as they represent a facility renewal or where we finance the prior state of development. There are four clear reasons we have strong earnings visibility into FY27.
Speaker #1: The first is our capacity to grow our $2.4 billion of available capital can drive a further 20% growth in fee earning Fum . Before we raise a single new dollar Second , a stronger starting position , we enter FY 27 with fee earning from 21% above the FY 26 average .
Speaker #1: That alone supports base management fee growth from day one . Third , a more productive balance sheet drawn co-investment rose 46% to $242 million , underpinning principle income Our co-investment in our European business acquired at a discount to face value .
Speaker #1: As further upside as these loans repay through FY 27 . Fourth , a higher quality performance fee pool embedded credit performance fees grew 32% in the second half .
Speaker #1: The total unrecognized pool now stands at $81 million . The composition has shifted significantly , and credit now represents 78% of that pool , up from 57% six months ago We do point out that the movement in the pool reflects two Covid era equity related funds performing below the hurdle rates .
Speaker #1: These assets represent around 2% of group FUM. To be very clear, these are performance fees. We have not booked them through the P&L.
Speaker #1: In fact , 95% were not expected to be realized until FY 30 . We remain focused on achieving the best outcome for these investors Before I hand over to Mark , I would like to briefly outline how we're viewing FY 27 Real Estate market sentiment has shifted .
Speaker #1: This reflects a range of factors , including tax changes and higher interest rates . We expect these dynamics to have an impact on the supply of residential property in Australia However , as we assess the immediate outlook , we believe it's important to keep in mind several underlying growth drivers that continue to support our positive outlook for FY 27 .
Speaker #1: The underlying housing shortage has not gone away. What we're seeing is a short-term impact on sentiment. However, the low vacancy rates that existed prior to the change in tax policies and rate rises continue to exist.
Speaker #1: And in reality, it will only be exacerbated, in our view, by these recent changes. As a result, this will further deepen the existing housing shortage.
Speaker #1: At the same time , competition in financing markets has reduced , as in our view , it would appear that a number of platforms have pulled back , supporting our deployment growth We're also seeing demand for refinancing in non-residential sectors growing One thing that has not changed is our discipline .
Speaker #1: And we have clear visibility on our earnings . As I've already said , we have a higher opening fee earning fund balance from which to derive base management fees , increasing base management fees from construction loans and drawdowns that we committed to in prior periods We expect margins to further expand through scale and AI , and we're accruing and receiving cash a growing stream of credit performance fees .
Speaker #1: It's also important to note we have exciting growth potentials across our platform, being Qualitas. Europe is expected to grow, better equity earnings should grow, and Arch Finance is on track to lift profitability from its current run rate. Taken together, these are pillars that underpin our near-term earnings growth and provide us with comfort behind the guidance we enter.
Speaker #1: FY 27 with our funds in a robust position with no impairments , as at the current date . While we acknowledge the changing dynamics in the Australian residential market , importantly , our funds carry no leverage and have no meaningful redemption rights , providing us with significant resilience and flexibility through what is changing market conditions As we say in property , time is your best friend and we've built our funds to stand the test of time through cycles .
Speaker #1: We believe our funds are well positioned not only to navigate periods of market change, but also to capitalize on opportunities that may emerge from market dislocation and competitor activity.
Speaker #1: To explain what those opportunities look like right now . I'll hand over to Mark . Thanks , Andrew , and good morning , everyone Over the next few slides , I'll take you through the market backdrop where the opportunities are and how our funds management platform is positioned to capitalize on them .
Speaker #1: I'll also provide an update on our funds management business across FY 26 and our pipeline for FY 27 . At the Macquarie Conference , we showed our deployment against the interest rate cycle .
Speaker #1: This one takes a different lens, plotting annual deployment against residential asset values. You can see that we've maintained deployment growth through the cycle.
Speaker #1: While our deployment isn't solely residential, it shows we've navigated changing residential markets while growing in a disciplined way. Macro changes, such as the interest rate cycle and recent federal budget tax changes, have created a short-term sentiment shift and reduced deal activity.
Speaker #1: So we're operating in a more challenging market . But some of Qualitas strongest periods of growth have occurred in markets like this . Historically , periods of uncertainty Declining valuations , tighter liquidity have created some of our best investment opportunities Qualitas was founded amid the GFC when the environment had similar characteristics and historically , these are the periods where we have made our best investments .
Speaker #1: The slide calls out the five years since IPO and the market headwinds in each of those years. Our growth over that period shows that we've navigated them while continuing to grow.
Speaker #1: We saw interest rates begin rising in 2022 , alongside significant construction cost escalation . And by 2024 , construction insolvencies had peaked and the cash rate had reached its highest level in a decade .
Speaker #1: Even over the past year , we've had the Middle East conflict . We've had an oil price shock , we've had three rate hikes , and we've had budget tax changes , which have all weighed on sentiment Yet through those headwinds , we've continued to grow the business sensibly .
Speaker #1: We tripled our average transaction size. We doubled net profit before tax. And we lifted annual deployment to a record $6.5 billion, which is a compound annual growth rate of 35% per annum.
Speaker #1: Since FY 22 . That consistent growth is not accidental . It's underpinned by the structural thematics that we keep talking about , ones that we believe hold over the long term , rather than shifting with short term sentiment or budget announcement .
Speaker #1: These include a structural housing shortage that we believe will take decades to resolve . There's also a widening house to apartment price gap , which supports apartment demand as affordability deteriorates .
Speaker #1: We've got growing demand for larger financing solutions as projects get bigger. There is still the structural retreat of traditional financiers from commercial real estate.
Speaker #1: We have growing institutional allocation to private credit globally, particularly in Europe and Asia Pacific, where we are, and we have the relative resilience of apartment values versus houses through the cycle, with apartment prices showing lower volatility.
Speaker #1: All of these thematics form the foundation of a business that is built to grow through macroeconomic uncertainty. On the next slide, I want to spend a moment on what has been driving our deployment growth.
Speaker #1: Our growth has not depended on volume , but on increasing our average investment size between FY 19 and FY 26 , deployment grew more than seven fold , while new investments each year only rose from 28 new investments to 44 new investments .
Speaker #1: The average investment size grew almost fourfold over that period, and nearly doubled in FY26 alone, including a single $1.2 billion investment.
Speaker #1: So, while one or two large investments can move the average in any given year, as we saw in FY26, the underlying trend still holds.
Speaker #1: We've scaled through larger , high quality investments Why does that matter ? If your growth depends on doing more investments , a softer market can force you to take more risk just to maintain volume .
Speaker #1: But because we focus on the larger end, where funding requirements rise as projects grow and costs escalate, we can stay selective since fewer players are able to participate.
Speaker #1: There . The chart on the right of this slide shows this over the same period that our deployment grew seven fold , we saw Sydney residential land costs rise 81% .
Speaker #1: The number of apartments per project rose 64% nationally, and construction costs rose 34%. So, the capital required to fund each project has therefore risen substantially.
Speaker #1: And as projects scale , they increasingly require institutional capital , which directly advantages Qualitas Another point underpinning this is the long term densification trend , with Australia well behind the rest of the developed world .
Speaker #1: As our major cities densify the pipeline of larger , complex projects precisely where Qualitas excels continues to grow . And I'll talk more about this on the next slide As construction costs and interest rates have risen , they have disproportionately eroded the feasibility of smaller projects .
Speaker #1: Larger projects, by contrast, can absorb fixed costs across a greater scale, and this chart shows the market in structural transition.
Speaker #1: Since 2015, the total number of residential projects has declined. Yet, projects exceeding 160 apartments have remained resilient, with their share of total projects tripling.
Speaker #1: Of course, no participant is immune from a systemic downturn, but larger projects have demonstrated greater resilience through the cycle and are generally backed by higher-quality sponsors.
Speaker #1: And this is exactly where we focus projects with more than 160 apartments accounted for 44% of our deployment in FY 26 , and this reflects our focus on the larger end , precisely where the market is heading There are two factors that support our market position and continued growth Firstly , the sponsors behind larger projects have substantial balance sheets .
Speaker #1: They borrow from both the traditional and the alternative financiers, and they take a long-term view on housing demand and look through short-term sentiment shifts.
Speaker #1: What they value most, however, is certainty of capital and execution throughout the development cycle. And that is what Qualitas provides.
Speaker #1: Through every period of elevated uncertainty, our institutional capital in our funds has allowed us to continue deploying into quality investments, giving borrowers the execution certainty that they need when others cannot. Second, larger projects carry greater financing complexity.
Speaker #1: Typically , they're too large for a single traditional financier , and the wholesale and retail backed platforms . And as a result , on those larger investments , we face less competition .
Speaker #1: It supports our pricing power and returns for our fund investors. It protects our margins, and it attracts more institutional capital to the platform, each of which reinforces the other.
Speaker #1: These tailwinds support our growth in residential deployment. Whilst acknowledging that a portfolio of larger loans carries higher concentration risk, we believe it is more prudent to actively manage a focused portfolio of larger investments that we review every six weeks than to monitor hundreds of loans, particularly in the current environment. Now, looking beyond residential, we are seeing a growing set of deployment opportunities across non-residential and commercial real estate.
Speaker #1: Traditional financiers have been retreating from commercial real estate for two decades, and it has fallen from 20% of their loan books in 2008 to 13% today.
Speaker #1: At the same time, a wave of refinancing is emerging as loans that were originated in a lower-rate environment start to mature.
Speaker #1: And as the chart on the right of this slide shows , refinancing is expected to be the largest source of financing demand over the coming year Traditional financiers hold some $400 billion of exposure across retail , office , industrial and other commercial real estate , which is over four times their exposure to residential and land development .
Speaker #1: So, as this debt matures, it represents a substantial addressable market for us. The final piece is where global private credit capital is moving, and there are two shifts working in our favour.
Speaker #1: The first of those is geographic. North America's share of private credit fundraising has fallen from 61% to 45%, whereas Europe has risen to 43% and Asia Pacific has more than doubled to 12%.
Speaker #1: This shows capital rotation towards the regions where Qualitas operates . With our acquisition of the stars platform , we are well positioned to capture this opportunity in Europe , and we have progressed investor discussions on that European strategy , which will be a key driver of growth and profitability for the new office .
Speaker #1: The second shift is by fund size, with capital concentrating heavily amongst the larger managers. Funds of $1 billion or more account for just 17% of private credit managers raising capital.
Speaker #1: Yet, they target over 70% of the total capital being raised. Most investors planning a commitment over the next 12 months expect to back just one private credit fund.
Speaker #1: So when an investor is writing one large cheque, they choose a manager with scale, with stability, and with a proven history.
Speaker #1: And that is exactly the position that Qualitas holds. Our fund structure reinforces that position. The vast majority of our investors have committed their capital for the long term and cannot withdraw their capital at will.
Speaker #1: More than 90% of our funds under management sit in permanent or closed-end structures, and our credit funds don't have back leverage.
Speaker #1: Of the 9% considered open-ended, only 1% of total funds is subject to quarterly redemption. We therefore have no material near-term redemption requirements.
Speaker #1: That puts us in a very different position to many others in the market. It means we can manage our portfolios without interruption from third-party creditors or redemption requests.
Speaker #1: If the economic environment deteriorates . More importantly , it positions us to lean in and take advantage of dislocations with these market trends as a backdrop , let me turn to our FY 26 deployment .
Speaker #1: And these dynamics are exactly what shaped both the volume and the composition of what we financed this year. We deployed a record $6.5 billion through fewer investments than the prior year.
Speaker #1: The mix continued to shift towards larger investments. We had larger investments, we had growing deployment, and we had broadly flat headcount.
Speaker #1: That's the operating leverage that is now reflected in our margins across our strategies. Construction and income credit grew strongly, and we also deployed into build-to-rent equity restructuring and led tactical credit opportunities.
Speaker #1: Our build to rent equity platform now has six assets with two operational , one fully leased , and the other leasing ahead of expectation .
Speaker #1: The strategy is well-positioned to benefit from a coming period of accelerating rental growth. We also believe now is a compelling time to invest in income-generating commercial real estate.
Speaker #1: We recently appointed Jesse Curtis as head of direct real Estate , a significant senior executive addition to the platform . We're progressing fundraising discussions and actively screening new opportunities to invest in that space in the credit business , our pipeline is building strongly into FY 27 with continued momentum in both the size and the certainty of investments .
Speaker #1: The closed and Investment Committee-approved portion is six times higher than at the same point last year, which gives us strong confidence in the base management fee growth through FY27.
Speaker #1: On the European platform, we are very pleased with the origination capability and quality of the team, and since we acquired the business, they have already identified new investment opportunities. This next slide shows how deployment converts into fee-earning FUM, and how our existing credit portfolio generates future investment opportunities.
Speaker #1: As developments progress . I want to spend a moment , however , on follow on investments because they are an important part of our model .
Speaker #1: These include facility renewals , increases and investment financing . The next stage of a project's development in FY 26 , we saw renewal activity , and we'd like to focus on this type of deployment for two reasons .
Speaker #1: Firstly, they carry lower origination costs than new investments, and secondly, they still generate transaction fees for Qualitas, which lifts our margins.
Speaker #1: So, as the platform grows, follow-on investments will remain a key focus for our deployment. That completes our funds management and market update.
Speaker #1: I'll now hand over to Phillip, who will take you through the FY26 financial results in detail. Thanks.
Speaker #2: Mark, and good morning everyone. I am delighted to report another record financial performance, with normalised net profit after tax of $44.3 million, up 20% on the prior year, driven by continued strong growth in our funds management business and disciplined cost management. Statutory net profit after tax was $41.7 million, up 25% on the prior year. There were three main drivers of this result.
Speaker #2: First, funds management earnings strengthened, underpinned by accelerating top-line growth and margin expansion, with net funds management revenue up 41% to $38.6 million.
Speaker #2: Second, there was a significant uplift in transaction fees on the back of a record deployment of $6.5 billion, and a strong contribution from net performance fees, which rose 70% to $13.7 million.
Speaker #2: A third principle income of $30.3 million was down 3%, as higher income from investments was offset by lower cash and underwriting income. As a result, revenue grew faster than expenses, expanding our normalised group EBITDA margin to 52% from 51%.
Speaker #2: Normalised net profit before tax was 63.4 million , up 20% . Normalised earnings per share rose 19% to 14.7 cents per share . On the strength of this result , we have declared a fully franked final dividend of 7.7 $0.05 per share , bringing the total full year dividend to 11.2 $0.05 per share , up 12.5% on FY 25 .
Speaker #2: This underscores the strength of our earnings and of our balance sheet. Looking now in detail at the funds management segment, we achieved 26% growth in total funds management EBITDA, at $70.3 million.
Speaker #2: A particular highlight is the 41% increase in net funds management revenue to $38.6 million, as revenue growth materially outpaced employee costs, reflecting the scalability of our platform. Base management fees grew 27% to $62.1 million, and transaction fees grew 28% to $23 million on the back of record deployment.
Speaker #2: Net performance fee revenue increased by 70%, driven by strong performance across our credit funds. Looking ahead, we expect performance fee revenue to continue to grow, as two of our construction credit funds are now four and five years since inception.
Speaker #2: As these funds mature, we recognise an increasing proportion of a growing performance fee pool accrued within the funds. We also delivered a record funds management gross operating margin of 54%—a clear demonstration of the economies of scale that come with larger investments, and up from 52% in the prior year.
Speaker #2: Corporate costs rose 15%, largely reflecting continued investment in our data platform and AI initiatives. This slide gives some further detail behind the operating margin.
Speaker #2: The chart on the left shows our funds management gross operating margin . Since listing headcount growth has remained below fund growth , with the gap widening materially in FY 26 and driving strong margin expansion Importantly , we expect our investment in AI to further support operating efficiencies , delivering future margin upside The chart on the right shows base management fee margins against average fee earnings on the compression in management fee margin reflects our institutional deployment mix with retail and wholesale channels less conducive to capital raising .
Speaker #2: Our core product fees remain unchanged, and we expect average fees to increase as capital rebalances to broader sources and construction loans continue to draw down. Principal income was broadly flat at $30.3 million, representing an average 9% annualized yield on our balance sheet.
Speaker #2: Cash and investments for the period . Turning to Arch Finance . Underlying contribution was 4.3 million , unchanged from FY 25 . That result is after adding back a one off restructuring cost of approximately 600,000 following the appointment of a new management team in early FY 26 , growth is building the loan book grew to 304 million by June .
Speaker #2: The business is shifting away from the highly competitive, bank-dominated lending market and has established relationships with three of Australia's largest loan aggregators, with further partnerships expected.
Speaker #2: We are confident in Arch Finance's market position and expect an improving contribution to the Group in FY27. The Qualitas balance sheet is strong.
Speaker #2: The increase in balance sheet investment reflects strong deployment, with capital deployed into co-investment and underwriting positions that have supported that deployment. We also deployed approximately $36 million of balance sheet capacity into our UK platform.
Speaker #2: Via acquisition of a fund, co-investment, and working capital. Despite this deployment, we retain substantial balance sheet capacity to support future co-investments and seed new mandates through the recycling of capital from shorter-term investments.
Speaker #2: Loan receivables of around $62 million represent underwriting positions in existing funds and voluntary co-investment. Our drawn balance sheet co-investments represent 2% of committed fund preserving capacity.
Speaker #2: To see new mandates , while reducing the sensitivity of our balance sheet and earnings to underlying fund performance for shareholders . Our consistent earnings growth , strong balance sheet mean we have adequate capital to pursue value accretive opportunities and to support co-investment and underwriting , while also supporting future dividends .
Speaker #2: I'll now hand back to Andrew for his closing remarks and our FY 27 guidance . Thank you . Thank you , Mark and Philip , when considering our FY 27 guidance , we encourage shareholders to balance the more challenging market environment with our discipline , our objective remains unchanged to generate attractive risk adjusted returns while protecting capital and position the funds to take advantage of opportunities that typically emerge in a transitioning market cycle .
Speaker #2: Institutional investors increasingly recognize that, in this environment, risk does not need to increase in order to generate attractive returns. As liquidity tightens, certainty of capital becomes more valuable to borrowers.
Speaker #2: This means we can invest at lower LVRs with stronger protections. That is a real advantage for Qualitas, as our capital does not need to chase risk in order to hit our returns.
Speaker #2: At the same time, Europe gives us another significant growth opportunity. We can take what we've built in Australia and extend it into a market roughly five times larger.
Speaker #2: I intend to devote significant time to building our UK and European business, while continuing to work closely with our team on institutional capital raising.
Speaker #2: We are doing that from a position of strength, with our Australian credit business continuing to perform well, supported by the depth and continuity of our management team.
Speaker #2: The objective is not growth for growth's sake. We want to build an international platform that is entirely consistent with the Qualitas way—that is, our disciplined underwriting.
Speaker #2: A talented and motivated team, capital preservation, certainty of execution, and attractive risk-adjusted returns. In my view, this sets Qualitas up well for many years to come.
Speaker #2: So with that backdrop , let me now turn to our FY 27 guidance . Net profit before tax of between 74 and $80 million , representing growth of approximately 17% to 26% on FY 26 and earnings per share of between 17.2 and 18.6 cents .
Speaker #2: And this excludes any mark-to-market movements on Qualitas co-investments in the Qualitas Real Estate Income Fund, and that fund's capital raising costs, and any other unforeseen events.
Speaker #2: We have good visibility on the drivers of that growth. Our FY27 dividend is expected to remain in line with our target payout ratio of between 50% and 95% of operating earnings.
Speaker #2: There are a number of factors that may influence the FY27 outlook, which are set out on the right-hand side of this slide.
Speaker #2: Our success ultimately comes down to our people. The talent, commitment, and collaboration I see across Qualitas every day makes me incredibly proud to lead this organization. To our team,
Speaker #2: Thank you for your dedication, and to our shareholders and investors, thank you for your continued confidence in what we are building. That concludes the formal part of our presentation.
Speaker #2: We'd now be happy to take your questions. Thank you.
Speaker #3: Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced.
Speaker #3: 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.
Speaker #3: Your first question comes from Olivier Cullen with E&P Financial Group. Please go ahead.
Speaker #4: Hi guys . Congrats on a great result . And you know , I mean , that was a very good run through of the macro on the deployment environment .
Speaker #4: I guess maybe for Mark , a question , you know , given the backdrop that you're seeing on the macro conditions , what sponsors are telling you and what you know , you're seeing from , you know , your competitors , like , how are you feeling about , I guess , the part of the pipeline that we don't see , which is my understanding , most of it at this point of the year , because obviously the total pipeline that you've deployed , you've disclosed is marginally down on FY 25 , but I'm aware that that doesn't include a whole bunch of earlier stage discussions .
Speaker #4: And when you're mandated
Speaker #1: Ethics , Ali . And good question . One , I expected to get asked as well . You're quite right in terms of the pipeline list .
Speaker #1: So we always track what we call a higher conviction pipeline list. And if I talk about how we're seeing that in the market at the moment, we have a lot of activity.
Speaker #1: Borrowers are active. There are a lot of potential transactions going on. And the interesting thing for us has been that the number of competitors in the market seems to have retreated somewhat as well.
Speaker #1: And so if I think about what exists beyond what we've talked about today in the presentation, what we talked about today in the presentation are things that are clearly under our control, that we think we are going to do. And to your point, there are obviously transactions that we are working on that we have high conviction in, that we may or may not do.
Speaker #1: But the team feel good about it. And if I think about that long list of pipeline, it's closer to $3 billion than it is the number that we reported.
Speaker #1: So I think what that shows is there's market activity still out there. I think we're seeing less competition for that activity, and we're just being very selective about what we want to do, where we have high conviction that the market activity is still there.
Speaker #1: Not sure, Andrew, if you wanted to add anything to that question as well.
Speaker #2: No, that's good, Mark. Thank you.
Speaker #4: Now , that's perfect . Maybe just a follow on question . If you if I may . So I mean , the guidance , you know , it doesn't appear super aggressive in the context that you're , you know , you're likely to get 3% growth just from arts getting to break even .
Speaker #4: And you've obviously got meaningful upside just from the annualization of the closing for owning firm and invested capital position. Now, what are you assuming to get to that from a deployment perspective?
Speaker #4: Do you need to see deployment growth to get to the midpoint of your guidance range?
Speaker #2: Yeah , I think Ollie , it's it's Andrew here . I think that what we've got going in our favor is it's a funds management business that grows year on year on , you know , where , where it was .
Speaker #2: And if you look at our fee earning Fum , you know , we're starting in July , about 20% higher than where we were at the same time last year .
Speaker #2: So , you know , we've already got a very substantial lift just because of our opening fee earning Fum . And then you add to that the fact that we've done a lot of construction loans in the previous period .
Speaker #2: And every single month for the next, you know, year and beyond, those construction loans continue to draw down as well.
Speaker #2: So we're able to factor in with , you know , high levels of certainty . The fact that we get those extra draw downs and extra fees because we actually get paid on capital in the ground as , as the jargon goes , so that increases our month in , you know , fee loads as well .
Speaker #2: And then we're able to , you know , overlay into that what we think is just a reasonable deployment assumption and , you know , to put your mind at ease , we haven't gone and assumed this massive growth in order to get to this guidance number that we've put out there .
Speaker #2: You know , we've had regard for the market and , you know , we've not we've not sort of , you know , taken this huge leap of faith on a deployment that we don't think we can achieve .
Speaker #2: So I definitely want to put your mind at ease on that point.
Speaker #4: Yeah , no , that's perfect . Thank you . Maybe just a very last one from me . Do you have any profitability from the UK slash European platform assumed in that guidance range , or have you seemed broadly neutral contribution .
Speaker #5: Thanks, Ollie. Broadly, neutral contribution is the assumption.
Speaker #6: Right, thanks. Appreciate it.
Speaker #3: Your next question comes from Elizabeth Marlantes with Macquarie. Please go ahead.
Speaker #7: Good morning , and thanks for taking my questions Just on the funds management margin , I think it's on page 23 . You've got a great shot there of , you know , historical revenue growth and employee costs .
Speaker #7: There's a really big spread this year between revenue growth and the cost growth, with cost growth being much lower than the revenue growth. How should we think about that cost growth into '27?
Speaker #7: Are we going to be operating at sort of that lower level?
Speaker #5: Look, thank you. Yes, the easiest way to answer that is we are continuing to expect slower cost growth relative to higher revenue growth.
Speaker #5: And therefore, some modest margin expansion.
Speaker #7: Is it—are you able to give a broad range from a number perspective, or just leave it at more qualitative comments?
Speaker #5: I'm more qualitative. I mean, it's been built into our guidance.
Speaker #7: Okay
Speaker #2: And then please . Sorry , it's Andrew . I think what you're seeing come through as well is really the benefits of efficiency and scale .
Speaker #2: You know , for a number of years , we've been heavily investing in , in the platform and as I announced to the market about 6 or 8 weeks ago , we've also , been putting a lot of effort into our AI initiative .
Speaker #2: Our deal room , work that the team's been been working on . And , you know , even in terms of the past period .
Speaker #2: But but I'd also say this in respect of the outlook period as well , I don't think we need to keep growing our , you know , our overheads , particularly our staff costs anywhere near the rate that we had been doing in , in previous years .
Speaker #2: And I think that Qualitas is reaching , you know , that that level of scale where , you know , we do expect our margins to increase .
Speaker #2: That's why I was very comfortable saying to the market that I thought we were going to go from above 50% to above 60% over the medium term.
Speaker #2: And I continue to stand by that conviction level. We're just seeing the efficiencies now coming through the business.
Speaker #7: Yep . Got it . And just on the fee margin as well , it was a little weaker . I think it was driven by deal size .
Speaker #7: But then also a bit of a shift, too, in how do we think about that going forward. But then, obviously, you keep getting the operating leverage offsetting that.
Speaker #2: Yeah, I think what's important to take into account when you look at that number—I think you're still on page 23.
Speaker #2: And just on the base management fee margin that you're looking at there, I think what's important to realize is we wrote a lot of construction loans in the previous period.
Speaker #2: And the way the fees work on those construction loans is that we basically get paid fees on the amount of capital we've drawn from the loan at any particular point in time.
Speaker #2: And so this is a really important point to understand as we continue to fund those construction loans and they get larger every single month , month in , month out , that fee increases relative to the size of the commitment that we've made or our committed , committed fund that we have .
Speaker #2: And so I wouldn't sort of place too much emphasis on the slope of that curve. I think it is purely a mix issue, and more importantly, it's a timing issue because that reverses out in previous periods as those construction loans continue to draw into the future.
Speaker #7: Okay . Got it . And then just one bigger , broader question , just from an institutional demand perspective , we've heard that institutional clients are really and made comments about this earlier as well .
Speaker #7: Really starting to push more into Australia or Asia more broadly . They are seeing the best risk adjusted returns currently . And that's despite all the negative press currently at the moment .
Speaker #7: What are you seeing from that perspective ? And does that mean that regardless of the broader market issues , if you're having , you know , your clients give you more money to deploy in this environment , that that should really underpin growth for the next few years .
Speaker #2: Yeah . Look , I think that , you know , what we're seeing is from institutional clients who are very , very sophisticated .
Speaker #2: What we're seeing is a buildup of interest in Australia because they differentiate between the Australian real estate cycle versus the Australian credit cycle, and they are two very different cycles.
Speaker #2: So, one of the things that you're finding in the market at the moment is that there's a particular focus around the sentiment of real estate, you know, which is coming out of the budget and interest rate hikes.
Speaker #2: I think , you know , many CEOs before , before me have discussed it in their various earnings calls , but that's the real estate cycle .
Speaker #2: Institutional capital is looking at the credit cycle, and the credit cycle is all about: what is the bank's behaviour? What is the more retail-based platform's behaviour?
Speaker #2: Where is risk adjusted returns moving in Australia ? What is the ongoing demand for credit ? That's actually required in Australia ? And when you look at those things , we are shining very bright on an international scale for why one should continue to invest and in fact , this has actually only become a more exciting market for institutional capital .
Speaker #2: And I don't say this lightly, but we are in very active discussions in respect of re-ups with existing clients and also the creation of new product that we're bringing to the market.
Speaker #2: All with , you know , very large institutions . And for me , it only shows there conviction of the Australian marketplace . And it's , you know , we , we're wholly supported , obviously , from what we're seeing on the ground here .
Speaker #7: Thank you. That's very clear.
Speaker #3: Your next question comes from Tim Piper with Jarden. Please go ahead.
Speaker #8: Oh , good morning , Andrew and Tim . Just the first one on the performance fee outlook . Just there's a bit of noise in there .
Speaker #8: Obviously, from the equity side of things. But you're seeing a very strong uplift in the growth in that pool from the private credit side of things.
Speaker #8: I think it's up over 30% . There's a couple of big mandates coming up to maturity as well . When we think about the outlook for performance fees now , you know , stripping that equity piece away , I mean , is that giving you greater confidence in the growth profile of performance fees over the next couple of years ?
Speaker #8: And when we look at that sort of 30% up, how do we think about that translating into performance fee growth over the next couple of years?
Speaker #5: Look , thanks , Tim . Great question . And yes , in the short answer is we are expecting higher contribution of performance fees in FY 27 and FY 28 .
Speaker #5: The way in which the funds are recognising the performance fees. And Qualitas continues to take a constrained recognition of the fund accrued performance fee.
Speaker #5: But as those funds mature, Qualitas is able to reduce the amount of constraint we put on that recognition as we move towards the maturity of those funds.
Speaker #5: So, as I said, the short answer is we do expect higher contribution in '27 and '28 than we have had in '25 and '26.
Speaker #3: Thank you. Your next question comes from Andrew Hodge with Canaccord Genuity. Please go ahead.
Speaker #9: Good morning . Thanks for taking my questions . Just the first question , Mark , you sort of alluded to this answer with respect to the competitive environment .
Speaker #9: It doesn't seem to be quite as competitive an environment, but have you seen any early movement from the big four banks, which are in a structural downturn, in terms of how much they lend to private credit?
Speaker #9: But would they tick up, do you think, in the near term, given that they're seeing declines in their residential mortgage system growth?
Speaker #1: Yeah . Thanks , Andrew . I think the most important point to consider in thinking about this question is the banks play in a very different risk return appetite sandbox to where our institutional investors and our funds play .
Speaker #1: And so, even to the extent that the banks did, because of the reasons you've described, want to come back into the type of space that we play in, they're looking for very different things to what we are looking for in terms of deployment.
Speaker #1: So we're currently not seeing it to any great scale . Yes , there , there . Yes , they're targeting the ultra blue ribbon borrower type on ultra blue ribbon assets .
Speaker #1: That's not the space that we typically play in, so they're not encroaching on what we're looking to do. I think, if anything, we can be complementary to them.
Speaker #1: A lot of the borrowers that we target are borrowers who have great relationships with those banks, but they also have great relationships with firms like Qualitas.
Speaker #1: So, it's not something we're looking at in terms of the outlook on deployment, and we're not thinking that it will impact our market activity.
Speaker #9: Great . Thank you . And then , Andrew , just to follow on the question around base base management fee percentage , I just want to understand .
Speaker #9: So so the way that you've described it , I guess what we're looking at for 27/26 is that that the given that the deployment in 26 was so high that the S curve of those loans naturally helps that base management fee as we move into a different stage of the timing around that curve .
Speaker #2: That's exactly right . So for people on the call that may not know what an S curve is , you know , it represents the the tracking of drawdowns on a construction loan month in , month out .
Speaker #2: And if you plot the incremental drawdowns , they they look like an S curve on a on a , you know , the letter S on a on a sheet of paper .
Speaker #2: So what that means is , you know , we've been a , you know , the baseline of , of the s if you think about it from bottom to up , you know , we've been at that baseline .
Speaker #2: So that means we're earning a relatively small fee load on those very large construction loans that we did last year. And as we climb up the S curve...
Speaker #2: Exactly . You know , we earn much more fees as every month there's more and more drawdowns that are , you know , going into those , those particular loans .
Speaker #2: So it's really important people understand that when they when they look at those numbers , you know , maybe a way for me to really drive the point harder is to the best of my knowledge , I can't think of one investor that has approached our firm to negotiate fees down over , over the reporting period .
Speaker #2: Right . This is not about investors saying , oh , we can go somewhere else and we can get better fees . And , you know , we're going to internalize the model .
Speaker #2: And therefore you should cut your fees . None of that is going on , right . What this is , is a mix issue .
Speaker #2: We did a lot of construction loans and , and , and as I said , in future periods , as we draw down on those construction loans , the , the level of fees , relative to the commitment increases at a corresponding rate
Speaker #9: Great . Thanks , Andrew
Speaker #3: Your next question comes from Neelesh with Citigroup. Please go ahead—your line is now live. Please proceed with your question. We'll move on to Liam Schofield with Morgan.
Speaker #3: Please go ahead, Liam Schofield, your line is live. Please proceed. Your next question comes from Tim Piper. Please go ahead.
Speaker #8: Oh , hi , Andrew . Sorry , my line dropped out before . Before I could ask a second one . Maybe just an update on the UK .
Speaker #8: Where are you at in terms of investor mandates? There are sort of clients in discussions, and what size mandate are we sort of thinking would anchor that business on a go-forward basis from here?
Speaker #2: Sure . Thanks . Thanks , Tim . Nothing . Nothing like a direct question . Look , it's a it's a business that , you know , we've literally owned the six , six weeks or so .
Speaker #2: What I can say is , you know , we've been really happy with the loans . Firstly , we acquired , you know , 11 co-investments in underlying loans .
Speaker #2: And we've been really happy with the performance of the loan book . We've had , you know , one , one repayment , you know , since since the acquisition date , which is a good thing because it shows The health of the book .
Speaker #2: Also , you know , as I announced in previous announcements , you know , we did acquire the co-investment , subpar as well .
Speaker #2: So obviously it's good for us when those loans repay and at full face value , given our acquisition price . Look , we've we're we're in active discussions .
Speaker #2: You know , we in our budgeting , we gave ourselves quite a lot of runway in respect of when we would land our , you know , first mandates in Europe .
Speaker #2: What I can confirm is, you know, in respect of the very major investors within the Qualitas group, we are in numerous discussions in regards to Europe.
Speaker #2: I think that everyone we've spoken to totally sees the logic of why Qualitas would have made that move into Europe . A lot of them are already very active over there , so it's not like , you know , we're explaining to institutional investors the merits of private credit in in the UK .
Speaker #2: And , you know , various European markets . And I'd say very early days , but we've had great reception from investors . And , you know , I feel really positive about what we can achieve .
Speaker #2: You know , over over FY 27 as well . So probably best for me to say , stay tuned , but feeling really good about what we've acquired and feeling that , you know , the numerous discussions we're having Qualitas is getting an excellent reception from , from investors
Speaker #8: That's great . Thanks . If I could just squeeze one more in . Sorry . Just on slide 15 , that chart showing sort of financing demand in the next 12 months , the pick up in demand for refinancing and development loans coming off a little bit , just a bit of extra detail around what that looks like on the refinancing side versus a core development loan .
Speaker #8: Would it look like, maybe in terms of size, maturity, and the kind of margins, are they vastly different or are they not too dissimilar?
Speaker #1: Yeah . So what we talk about when we get into the types of investing in the credit business , we talk about total return credit , which is our construction financing activities .
Speaker #1: And we talk about income credit , which is lending to completed real estate . So really what that talks about is perhaps we expect to see more in the income credit space because there is more refinancing required of existing completed real estate from a Qualitas manager perspective , in terms of the fees that we can generate , the fee cards on , those are very similar between construction and income in terms of average transaction size .
Speaker #1: Look, I do expect that construction financing will be a larger average size, but also it's worth noting that the management intensity from a Qualitas perspective on a construction loan is higher versus that on a non-construction loan.
Speaker #1: So , so from a margin perspective , for us , they're very , very similar , notwithstanding , there might be a difference in average size .
Speaker #1: And so, really, what we're trying to say on that slide is there is a wall of existing loans that were made a number of years ago by others and by the banks that need to be dealt with over the coming period of time.
Speaker #1: And that's a great hunting ground for our team to go and look to deploy into.
Speaker #8: That's great. Thanks for taking the questions.
Speaker #3: Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Neelesh Bhaiya with Citigroup.
Speaker #3: Please go ahead .
Speaker #10: Hi . Thanks for giving me the opportunity again . So my first question , coming back to your OpEx , right ? It's about the performance fee incentive .
Speaker #10: Now, you have discussed the core employee cost, where you do see a lot of economies of scale and operating leverage, but even the performance fee incentive line seems to be trending lower.
Speaker #10: Is that just a timing issue or a mix issue, or is that also a lever driving your EBITDA margin?
Speaker #5: Thanks , Nilesh . The the operating margin is increasing . So I'm not quite sure I understand your connection with the performance fee , because the performance fee contribution was higher in FY 26 than the previous year .
Speaker #5: And the margin on that on , on the actual performance fee on a net basis was , you know , still , still very high at 98% margin .
Speaker #5: So it is actually helping us to—it is helping to improve the overall group margin, if that's your question.
Speaker #10: Yeah , yeah . So , so , but yeah , but I thought that the performance fee incentives , you know , you had been guiding her higher percentage of the gross , but it's trending lower right ?
Speaker #5: Yeah .
Speaker #10: It is helping you .
Speaker #5: Yeah , it's a good point . They incentive the staff carry cost . We do guide to a higher average normalized carry . Certainly that is not flowing through in FY 26 .
Speaker #10: Okay . And perhaps can you discuss the arch finance a bit . It seems like there is a strong turnaround there . There is a strong growth .
Speaker #10: If you look at the committed funds, there are $372 million, which suggests that FY27 should again be a strong growth year on the loan book.
Speaker #10: Is there a . So in terms of your guidance , is there a strong delta in EBITDA margin contribution from from Arch Finance that you are assuming
Speaker #5: So, just so I can clarify the question, we're talking about the base management fee contribution.
Speaker #10: No, the Arch Finance EBITDA.
Speaker #5: Oh , sorry . Certainly for arch , we're expecting a very solid turnaround in that business . If we think back to the previous June 25th , we were down in the low $200 million portfolio size .
Speaker #5: And we've closed at June 26th at just over $300 million portfolio size. And that momentum is—do expect the Arch contribution to move from a contribution loss to a contribution profit in FY27.
Speaker #5: As part of our guidance.
Speaker #2: I think .
Speaker #10: That's all. Yes, sorry.
Speaker #2: I think just the other thing that I'd add there is , you know , when you look at , you know , we do have it on one of the slides , but when you sort of look at where we've come from on , on arch , where at June 2025 , it was $224 million of total total receivables .
Speaker #2: And a year later , you know , we're at 304 . That's a , you know , very , very sizable increase . And , you know , it's only August .
Speaker #2: So , you know , we're what's that six , six weeks from from balance date . And we're , we're up at $329 million .
Speaker #2: So you can see there that , you know , that business has really substantially turned around and , you know , is really showing month in and month out growth in , in its loan book .
Speaker #2: And I think it goes to one of the earlier questions about , you know , what's what's happening more in the bank market and , and , you know , there you can it reflects where the banks are at .
Speaker #2: But also where some of that sort of smaller ticket competition is at as well in terms of , you know , their competitive behavior , but it's really given us an ability to take quite a sizable jump on that , on that particular business .
Speaker #10: Yeah. And then you expect that growth to continue even beyond FY27. Like, you want to grow that business.
Speaker #2: Yeah . Look , I think that we're committed to it . I , you know , it's got a new senior management group who is very focused , as I think Philip said , we've got three new broker relationships .
Speaker #2: They've developed a new product. They're out in the market looking at new funding lines that are incremental to the business as well.
Speaker #2: I think there's a lot to look forward to.
Speaker #10: Sure . Thank you
Speaker #3: There are no further questions at this time. I'll now hand back to Andrew Schwartz for closing remarks.
Speaker #2: Great. Thank you. I'd just like to firstly take the opportunity to thank my Board of Directors. They give tremendous oversight and guidance to myself and the executive leadership team.
Speaker #2: I would like to thank the entire Qualitas staff for their unwavering support that they've shown over the course of what has been an excellent year for the firm, and to thank our shareholders and our investors for the support that they give to the company.
Speaker #2: I think if anyone on the call has got any further questions , please reach out to myself or , you know , any member of the IR team and that formally concludes our full year 2026 earnings call .
