HMC’s recurring-fee engine points to stronger FY27 earnings

Operating earnings held up as statutory profit turned negative

HMC Capital Limited (ASX:HMC) is asking investors to look past a $111.6 million statutory loss and focus on a more resilient recurring-income engine. The alternative asset manager delivered FY26 pre-tax operating earnings per share of 40.4 cents, in line with guidance, while recurring funds management revenue rose 22% to $165.5 million.

The statutory result was pulled lower by $133.3 million of net fair value losses and a $68.0 million loss from discontinued operations, mainly linked to the strategic review and wind-down of the StratCap US digital infrastructure business. HMC’s operating earnings after tax fell to $199.4 million from $211.9 million, but management introduced underlying pre-tax EPS of 30.2 cents as a measure intended to better reflect cash-backed earnings. The contrast was also central to the company’s FY26 statutory loss, previously reported alongside maintained dividends and FY27 growth ambitions.

Recurring fees and institutional capital provide the growth case

Fee-generating assets under management increased 15% to $16.9 billion, with management fee revenue up 23% to $159.3 million. Real estate remained the largest platform at $9.0 billion of fee-generating AUM, while private credit grew 17% to $2.3 billion and digital infrastructure stood at $4.1 billion.

Private credit has become one of the clearest tests of HMC’s ability to convert institutional demand into recurring earnings. The platform secured $1.35 billion of new mandates, including a strategic partnership with TPG Credit, leaving about $1 billion of dry powder for FY27 deployment. That builds on the $1.35bn private credit mandates announced earlier in the year and a pipeline of more than $4 billion under evaluation.

KKR partnership reshapes Illuma Energy exposure

HMC also completed its strategic partnership with KKR-managed funds in Illuma Energy on 30 June. KKR committed up to $603 million, comprising an initial $355 million investment and up to $248 million for the first battery energy storage system development. HMC retained an 80% interest but ceased to control the platform, which is now accounted for as a joint venture.

The transaction reduced HMC’s invested capital in Illuma to about $200 million while retaining exposure to future platform growth, according to the annual report. Illuma had 652MW of operating capacity at year-end, with about 2GW of near-term projects progressing towards final investment decision. The partnership had been detailed in the earlier $603 million KKR backing, but the annual report now shows its accounting and ownership consequences in the full-year numbers.

FY27 guidance depends on deployment and execution

HMC is guiding to FY27 underlying earnings of at least 35 cents per share, representing 16% growth on FY26, underpinned by more than 30% growth in recurring funds management revenue, higher distributions from co-investments and fixed-cost leverage. It expects full conversion of underlying earnings guidance to cash in FY27 as non-cash management-fee arrangements cease.

The board also lifted FY27 dividend guidance to 15 cents per share, 25% above the 12-cent FY26 dividend. HMC reported $1.9 billion of tangible assets and undrawn debt capacity, gearing of 10.7% and approximately $500 million of undrawn corporate debt capacity. The balance sheet has been simplified through the return of capital from HMC Capital Partners and the planned exit from US digital infrastructure, although the strategy now places greater weight on recycling that capital into platforms capable of generating recurring fees.

Healthscope transition remains an unresolved real estate variable

The real estate portfolio delivered 99% occupancy and 4.0% comparable net operating income growth across its daily-needs retail assets. HMC said HealthCo reinstated FY27 distribution guidance of 6.0 cents per unit after binding agreements were signed for The Mount Private Hospital and executable proposals were submitted for the remaining 10 hospitals.

Commercial discussions for those 10 hospitals were still ongoing at the report date. That leaves an important distinction between the portfolio’s reported operating resilience and the still-incomplete transition of a major healthcare tenancy. The next test for HMC is whether its new earnings framework can absorb those moving parts while the private credit, data-centre and energy platforms turn committed capital into fee income and cash distributions.