Arena REIT (ARF.AX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Arena REIT Full-Year 2025 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Rob de Vos, Managing Director. Please go ahead, sir.

Good morning, everyone, and a very warm welcome to Arena REIT's Financial Year 2025 Results Presentation. I'm Rob de Vos, Managing Director of Arena. I'm joined today by our CFO, Gareth Winter; and our Chief Investment Officer; and as of today, CEO designate, Justin Bailey. Our results materials that we're presenting today were lodged with the ASX this morning as was an announcement informing the market that after over 13 years with Arena, I'll be stepping down as CEO and Managing Director. It's a transition that has been well planned and one that I'm confident in. As you'll hear throughout the presentation, the business is in a very strong position. It has a clear strategy and excellent prospects for continued growth. I'm particularly confident in the safe hands of Justin, supported by a high-quality Board and management team. You can see on Page 3 of our results presentation materials that in addition to Justin, we've expanded our team in preparation for leadership changes and further disciplined growth with key hires across our property and investment team as well as our corporate affairs team. Many of you already know Justin, who has been with Arena for 1.5 years and is in the Board's view and mind, the ideal candidate to lead the business and our exceptional team into its next chapter. Justin, the Board and I are committed to ensuring a smooth leadership transition, and I'll be focused on making that happen over the coming months. Leading Arena has been a career highlight for me, and I'm incredibly grateful for the trust placed in our team and proud of the success we've achieved in creating positive investment outcomes and increasing access for many Australian families to high-quality properties that accommodate essential community services. Following the transition, I'll be leaving with genuine excitement about the prospects of our business and what our team and our partners are capable of. Okay. Into the results on Page 4. Financial year 2025 has been another positive period for Arena. The business has accelerated investment activity as the trajectory for market interest rate costs became clearer and new opportunities emerged where our competitive cost of capital and deal sourcing expertise could be used. With an expanded and experienced management team and a balance sheet with substantial capacity, we remain well positioned to capitalize on further growth opportunities that are consistent with our strategy and investment objective. The growing needs of Australian communities continues to support the social infrastructure property sector, population growth, government indebtedness and a higher expectation for communities for improved quality and availability of the essential services that Arena accommodates, provides the business with strong long-term macroeconomic tailwinds. In this context, Arena's portfolio, operations and outlook are in a strong position. Highlights of the outcomes and achievements for financial year '25 include a statutory profit of $81.5 million and underlying cash-based net operating profit of $73 million, which is up 17% on financial year '24. Our earnings per security increased to $0.1855, up 5.1%. Our net asset value per security is up 1.5% to $3.46. We increased our investment capacity early in 2025 with a $140 million equity raise, and we've also actively recycled older, less efficient assets during the year to position us well to execute on new opportunities as they emerge. And we've taken advantage of that position with 11 operating properties acquired, the completion of 12 Early Learning Centre developments and we've replenished our development pipeline to now include 29 projects, securing an investment program that will support future years earning growth for the business. Partnering and understanding the needs of our tenant partners and the growing community demand for their services has allowed us to achieve efficient long-term earnings growth. And we're pleased to announce today distribution guidance for financial year 2026 of $0.1925 per security, reflecting an increase of 5.5% on financial year '25. Moving on to the next slide there. In an environment where we are seeing short- and medium-term growth opportunities emerge, we remain committed to our strategic discipline and with a clear focus on the needs of our stakeholders. Understanding and addressing those needs underpins the long-term success of Arena. It helps shape our strategy, informs our decision-making and ultimately, best positions the business to create value on a long-term and predictable basis. Highlights and outcomes over financial year '25 across key management focus areas include an increase in development and acquisition activity that has seen the portfolio increase to 295 properties. As you'll hear from Justin, those capital transactions have again improved the quality metrics of Arena's portfolio. We've also maintained our sector-leading WALE of over 18 years. We've seen a small expansion in market yields, which has been mitigated by passing and market rent growth, particularly across the early learning portfolio, providing for an overall uplift in portfolio value of 1.5%. The passing yield for the portfolio is now just under 5.5%. Portfolio is 100% occupied. Our weighted average like-for-like rent increases for the year was 3.5%, which includes 30 market rent reviews, which were completed at an average increase of 6.8%. We've made further progress on our renewable energy projects, with 92% of the portfolio now being powered by solar energy. These initiatives are not only reducing the energy intensity of our portfolio, but they are lowering utility costs for our tenant partners and are favored by our tenants customers, the families and communities that use our properties daily. We've divested 5 assets in the period for a total of $37.5 million at an average 18% premium to prevailing book value and recycled those proceeds back into our development pipeline and acquisition programs. We've acquired 11 operating properties and have completed 12 Early Learning Centre developments. We have further expanded the development pipeline, which now has 29 projects at various stages of completion, all of which we anticipate completing over the next 2 years with a forecast total cost of $227 million and $176 million of expenditure forecast to complete as at 30 June. The anticipated net initial yield on all our costs for these projects is 6%. Moving on to an update on our sustainability programs. And as many of you will be aware, sustainability is not something we treat as a separate project or division at Arena. It's part of who we are and how we run the business. We believe that by embedding sustainability in every decision we make, we're creating long-term value for you, our investors and delivering real benefits to the communities we invest in. We're proud of the positive social impact our portfolio delivers across our Early Learning Centre and health care properties. These are essential community services that tens of thousands of Australians rely on daily. Over the past 12 months, we've achieved 0 organizational Scope 1 and 2 emissions. Our emissions reduction plan is on track, with a clear path to net zero financed emissions by 2050 and an interim goal of cutting emission intensity by 60% to 70% by 2030. These steps aren't just good for the environment, they make our tenants stronger, lower operating costs and enhance the long-term value of our assets. For those wanting further detail on our sustainability programs, please take a look at our 2025 sustainability report, which we anticipate will be released in late September. I'll now pass you over to Gareth to provide further details on our financial results.

Thanks, Rob, and good morning, everyone. Just turning to Page 8 of the presentation. You will find a summary of Arena's FY '25 operating income statement, which shows the 17% increase in net operating profit to $73 million and a statutory profit of $81.5 million. There's a reconciliation of net operating profit to statutory profit in the appendix to the presentation, with the most substantial items being the periodic revaluation of investment property and derivatives. Operating EPS of $0.1855 is 5.1% higher than FY '24, with the key driver of the increase in operating profit being the relative 15% increase in property income. The increase in property income is from a combination of rent reviews and capital deployment. Like-for-like rent reviews averaged 3.5%. As inflation has more recently declined, we have moved back towards the minimum annual rent escalation mechanisms in the leases, which averages close to 3% per annum. There is also additional growth from market rent reviews, which averaged 6.8% in FY '25. Also contributing to the increase in income were the acquisition of 10 operating ELCs and a health care-based asset during the year and income from Arena's ongoing program of investment in ELC developments, with 12 ELCs completing during the year. Looking at some of the other line items. Other income is interest income, which is higher than the prior year as some of the proceeds from our July '24 capital raise were held in cash pending near-term property settlements. There's been a modest change in property expenses. The expense is ultimately linked to the size of the portfolio and is largely comprised of independent valuation and property inspection costs. There's been a $700,000 increase in cash-based operating expenses. This increase was expected and was flagged in our FY '24 results, with the increase being primarily from our investment in our team resources to support growth and succession planning, including the Chief Investment Officer role and other roles in our property team. Our cash-based MER remains at around 33 bps. The increase in finance costs is largely due to the acquisition of operating properties during the year with total debt increasing by $60 million over the course of the year, albeit gearing has remained stable given the equity raising and our overall cost of debt remained relatively stable during the year. Capitalized interest on the development book for the year was $3.3 million, which is slightly higher than the comparative period by $400,000, reflecting greater average value in the development WIP. The higher statutory profit of $81.5 million was primarily due to the higher asset revaluations of $24 million compared to $4 million in the prior year. We have paid distributions of $0.1825 per security for FY '25, which was in line with our guidance, which represents growth of 5% on FY '24. We have provided guidance today for FY '26 distributions of $0.1925 per security, which represents growth of 5.5%. In terms of some core assumptions for the guidance, we've used the forward BBSW curve at an average rate of 3.3% across FY '26, noting that our hedge cover is expected to average around 80% across FY '26 at a rate of 2.8% and an average CPI assumption of 2.5% each quarter. At this level, the CPI of the minimum rent escalation comes into force. Our payout ratio is expected to be consistent with recent years, noting FY '25 was 98.4%. Turning to Page 9. This is a waterfall chart of EPS change for the period. The chart demonstrates the relativity of the individual items supporting EPS growth, noting the key drivers of growth remain periodic rent reviews and the deployment of capital into acquisitions and developments, with the main offset in funding mix from the capital raise prior to those funds being deployed into new investment, noting that the full benefit of our FY '25 acquisitions will not be realized until FY '26. Turning to Page 10. This slide presents a summary of Arena's balance sheet. The full balance sheet is in the appendix to the presentation. Key points here to note are the 12% growth in investment property, being primarily due to $224 million invested in acquisitions and development CapEx during the period, positive asset revaluations of $24 million, which has been offset by asset sales, noting that we have $15 million of asset sale proceeds in receivables, which will be received in the first quarter of FY '26 and a further $35 million of assets held for sale, of which $18 million is subject to contract. The asset divestments represent capital recycling into new developments to improve our overall portfolio quality. Gearing of 22.8% is stable, notwithstanding the significant capital deployment during FY '26 due to the $164 million of equity raised during the year and the positive asset revaluations. Turning to Slide 11 and the capital management summary. The highlights here are: to support new investment, we completed an institutional placement of $120 million in July of '24, together with an SPP, which raised $24 million in August. That is then supplemented by a further $20 million raised through our DRP. We completed a debt refinancing in April of '25. The facility was expanded by $100 million. All tranches were extended by a year and with a weighted average term now of 3.9 years, with no expiry before 31 May, '28. Pricing was also reduced across all maturities. At 30 June, we had immediately available liquidity of $163 million from the debt facility, which together with the capital recycling from the proceeds of asset sales, covers our development commitments of $176 million. Our relatively modest gearing allows us to further consider expansion of our debt facility for new investment opportunities. In FY '23, we introduced a sustainability overlay on our debt facility with a range of targets across our solar program, emissions reductions and modern slavery program to get this results in a modest pricing adjustments in relation to those targets, and those targets were fully achieved in respect of FY '25. Our all-in weighted average cost of debt at 30 June has increased slightly to 4.1%, which was expected and primarily due to natural change in our swap book as expiring swaps roll off and new swaps commenced during the year. This was offset by improved pricing on our debt facility. The primary objective of the hedging program is smoothing rates through the cycle with a substantial and sustained increase in floating rates since FY '23, mitigated by our practice of holding consistently high levels of hedge cover. At June, we had hedge cover of 69% on our active swaps with a weighted average term of 2.3 years and a weighted average rate of 2.45%. The average hedge rate, including forward start hedging of the current book averages 2.78% in FY '26 and 3.06% in FY '27. The hedge book, including forward start hedges, provides cover across FY '26 and FY '27 within our target range of 70% to 80%. We will continue to add to the hedge profile over time to increase cover for FY '28 and FY '29, but still maintain scope to participate in further interest rate reductions in the hedging program as our development pipeline is funded. Finally, it is important to note that Arena continues to operate with substantial headroom in our banking covenants. And I'll now pass to Justin to give us an update on Arena's property portfolio.

Thanks, Gareth, and good morning, everyone. I'm Justin Bailey, Arena's Chief Investment Officer, and as of today, CEO designate. I thank Rob for his early words. I'm incredibly excited to be transitioning into the role of CEO and Managing Director later in the year. I've worked closely with Rob and the Arena Board over the last 18 months, getting to know the business, our team and our stakeholders. I look forward to working with our expanded Arena team to build on the company's track record, consistent with our strategy and our investment objective. Today, I'll provide an update on Arena's portfolio and operating environment. Starting on Slide 13 of the presentation. Arena's operating portfolio comprises 271 Early Learning Centres and 10 health care properties with a value of $1.74 billion. Consistent with our purpose of building communities together, our portfolio supports the delivery of essential services, including childcare, primary health care, disability accommodation and key health care worker accommodation across many Australian communities. Demand for these essential services has resulted in the portfolio being in an excellent position. The portfolio is diversified, both in terms of geographies, with the properties located in major population centers and particularly the East Coast. And in terms of tenants, we currently have 35 tenant partners, with no individual tenant accounting for more than 21% of our income. The passing yield on the portfolio at 30 June was 5.47%, representing a slight expansion in yields over the full financial year of 8 basis points, with our ELC yields expanding by 5 basis points to 5.41% and yields on our health care assets expanding 41 basis points to 6.09%. The net valuation movement for the portfolio over the period saw an increase of $24 million, driven by strong increases in passing and market rents, particularly in our early learning portfolio. A detailed breakdown of our ELC valuations, including developments, is included on Slide 27. Moving on to the lease expiry profile on Slide 14. We have no lease expiries due in FY '26 or '27 or '28. And as you can see in the graph on this slide, we have less than 1% of the portfolio's income expiring prior to the end of 2032 and over 60% of the portfolio lease income expires from 2040. We continue to focus on portfolio WALE as a priority, targeting acquisitions with long-term leases in place and where possible, putting new leases in place, renegotiating existing lease terms to extend leases and adding new 20-year leases through our development program. This active management of our portfolio has helped extend our WALE over the second half of the year to 18.4 years. Since 2020, we've been able to increase the portfolio WALE from 14 years, consistent with our investment objective. Moving on to rent reviews on Slide 15. Like-for-like rent increased by 3.5% in FY '25 as a result of annual and market rent reviews completed during the year. The vast majority of the portfolio's income is structured with an annual escalation that is the higher of CPI or an agreed fixed amount, typically 3%. This provides continued income growth linked to CPI in periods of high inflation as we've seen in recent years, but importantly, provides a floor on rent growth as inflation abates as we're now seeing. 30 market rent reviews were completed in the period. Those reviews were resolved at an average increase of 6.8%. Of those reviews, 25 were capped at 7.5%, with the reviews hitting the cap on 21 properties. In FY '26, we had 43 market rent reviews, representing 10% of the portfolio's income, of which 31 are capped at 7.5% and 12% are uncapped. We are still seeing continued growth in market rents as a result of strong demand for early childhood education and care services, which is evidenced by high occupancy and increases in daily fees in the sector. Over 40% of the portfolio's income is subject to market rent review over the next 4 years. Moving now on to Slide 16. We've had a strong focus on portfolio curation in 2025, taking the opportunity to divest poorer quality assets and invest into better located and higher-quality properties. We completed 11 acquisitions in FY '25 totaling $129 million at a weighted average initial yield of 6.1%. That comprised 10 operating ELCs, all tenanted by existing tenant partners. We also acquired a purpose-built key health care worker accommodation property backed by a 19-year triple net lease. All of those acquisitions were made in the first half and are performing in line with expectations. We sold 5 ELC properties during the period for total proceeds of $37.5 million. The sales represent a premium to book value of 18%, with the majority of proceeds to be received in FY '26. The result demonstrates the deep liquidity in the secondary market for childcare assets, which allows us to recycle capital from underperforming centers into well-located, high-quality properties and our development pipeline. Portfolio curation will remain a key focus for us in FY '26. Turning to Slide 17. We completed 12 Early Learning Centre developments in the financial year. Those developments represent a total investment of $83.1 million and an initial passing yield on total cost of 5.8%. Our continued record of development completions demonstrates Arena's ability to manage programs of ELC development at scale. We currently have 14 developments underway, which will complement the portfolio and deliver future earnings growth. In addition, we conditionally contracted a further 15 developments prior to 30 June. Including those, our pipeline has 29 developments with a total forecast cost of $227 million. The forecast weighted average initial yield on all costs for the pipeline is 6%, and the projects are scheduled to complete over FY '26 and FY '27. Consistent with our approach to development, each of the projects is being undertaken on a fund-through basis, which provides contractual protections for time and cost overruns. And each has an agreement for lease in place based on our standard form 20-year triple net lease. In the past 10 years, Arena has delivered 90 ELC developments. It demonstrates the capability of the Arena team to source and deliver new purpose-built properties for our tenant partners around the country and remains a key focus in our strategy. Moving on to Slide 18. Arena's early learning portfolio remains in a strong position. Our occupancy is 100%. Our tenant partners' average underlying business occupancy remains stable from FY '24. Average daily fees have increased to $155 a day at March 2025, up 9.75% from March 2024. This average daily fee remains below the government's benchmark fee of $161 a day. As you can see on the graph on the bottom of the slide, the government funding package continues to suit our portfolio, which is typically geared towards middle-income families. Our average rent across the portfolio has increased to $3,240 per place. But while rents have increased over the period, on average, affordability of rent for our tenant partners has improved, with net rent to gross revenue dropping below 10% to 9.9%. Net new ELC supply over the period was 3.5%, generally in line with the prior year. Reforms introduced over the last 2 years are expected to further increase demand by improving affordability and access for families, including the announced removal of the activity test in the government's 3-day Guarantee Bill passed in February this year. I'm now on Slide 19. The benefits of early childhood education and care are well established, improved lifelong learning outcomes for children, greater workforce participation and increased financial security, particularly for women and improved economic productivity. The return on investment for government is estimated in various economic studies to be $2 and up to $7 for every dollar invested in early childhood education. Childcare remains a centerpiece of federal government policy. As we've seen in the last 2 years, a series of policies all centered around providing expanded access to high-quality, affordable childcare, which supports continued growth in the sector. Recent incidents of abuse and misconduct in childcare centers have brought in a greater focus to the regulatory framework and led federal and state governments to propose a range of measures designed to improve safeguarding of children and quality across the sector. We support the adoption of enhanced safety measures. We're working with our tenant partners in our role as property owners to support the response to regulatory reforms, noting that our leases are structured on a triple net lease basis. In our view, the proposed changes increase oversight in the sector and will ultimately lead to a stronger and a safer sector. Moving on to the next slide. Our existing portfolio of community-based health care and health care accommodation properties continues to perform in line with expectations. The longer-term fundamentals of the health care sector remain attractive. Community demand for health care services will continue to increase as a result of Australia's growing and aging population. We continue to closely track the sector and see that we are entering a period where there may be increased opportunity for investment as pricing shifts to more attractive levels. As we reported in our half year results, we acquired a key health care worker accommodation property in December, fully leased to Bendigo Health, a Victorian government entity. The property was purpose-built under a long-term triple net lease arrangement and provides essential support to the delivery of health care services in that region. Investment in health care and other social infrastructure property sectors remains part of our growth strategy. This investment highlights the features we're looking for when considering further investment. We remain disciplined in our approach with a continued focus on our investment objective, which is to deliver an attractive and predictable distribution to investors, with earnings growth prospects over the medium to long term. I'll now hand back to Rob.

Thanks, Justin. I'm now on the final slide. Today, we are announcing full-year distribution guidance for financial year '26 of $0.1925 per security, an increase of 5.5% on financial year '25. The portfolio is in a strong position. Our health care and childcare investments are performing well. We have solid rental growth across the portfolio with long leases that have embedded and transparent income growth. Future earnings growth for the business will be underpinned by those contracted annual rent increases, including outstanding and future market rent reviews and the impact of our financial year '25 and financial year '26 acquisition and development completions. Looking forward, Arena's outlook is positive. Early learning and health care services are integral to economic stability and improving community outcomes. Those themes underpin Arena's portfolio value and investment objective. We're in a great position to explore and execute on new growth opportunities with gearing under 23%. Our expanded and experienced management team has strong industry relationships and expertise that will assist us sourcing those new opportunities in our usual disciplined way. In closing, I'd like to congratulate Justin on his deserved appointment to CEO designate and to thank the Arena team and our tenant partners for their efforts and contribution to the positive outcomes that have been achieved for our investors and the communities in which we invest in financial year 2025. I'll now pass the call to the operator to open up for questions. Thank you.

[Operator Instructions] And the first question will come from Lou Pirenc with Jarden.

Justin, congratulations on the new job. And Rob, congratulations on a great career, having covered the stock since IPO. It's been great to see a disciplined growth of Arena. In terms of the questions, can you maybe talk about the development pipeline? Is that the 15 newly contracted developments? Is that one portfolio with one operator? Or is it just an amalgamation of individual ones?

Lou, great question. It's a mix of operators and a mix of developers. In that, there is one particular operator who is a very strong performing operator who has a number of agreements for lease that will support that, but it isn't one single portfolio.

And should we see the -- I mean, I guess, the acceleration of the pipeline is something you're focused on going forward to accelerate that further?

Yes. Look, I mean, I think it's been a key part of the business' strategy for a long time. We do see it continuing as a core focus. And I guess we're encouraged by seeing strong regulatory support for the sector continue to present opportunities for us. So, definitely will form part of the key growth for the business going forward.

Great. And then maybe also on the acquisition of the stabilized assets. Just interested, I mean, how much upside is there for you as a, I guess, a new landlord to push rents or to work with the operator to get better financial outcomes?

I think we're certainly in buying the properties with in-place income, we have to take the leases that we're buying into. We see a lot of opportunities that we decline because we don't like the quality of the leases. The properties that we bought have leases that are quite close to ours. We will always look for opportunities to extend leases or change rents if there is an opportunity to talk about whether it's installation of solar or other augmentation of the properties there. So, we'll actively look for that. But at the moment, what you'd say is you'd value the cash flows coming from the leases that we acquired whilst we work through that.

Great. And then maybe a final one for you, Gareth. Just -- I mean, you highlighted the operating costs and the reasons for it. Is that something for FY '26 guidance where you expect further elevated operating cost inflation?

I think we -- there's obviously a bit of a transition going on during the course of '26. So, there'll be some ins and outs. I'd expect that the overall cost would remain around that 33 bps mark.

The next question will come from Cody Shield with UBS.

Firstly, Rob, just congratulations and well done on your time with Arena. And Justin, congratulations on the appointment. First question, I suppose, what changes should we anticipate with strategy post that leadership transition? Do you think there'll be any major shifts in portfolio composition, for example?

No. Look, I think management and the Board are very aligned in terms of the strategy that we currently have. The transition won't change that. As you'll have seen from, I guess, our FY '24 results and looking at FY '26 -- sorry, FY '25 and FY '26, we're clearly looking to execute that strategy well.

Okay. And just maybe on Slide 20. I think this might be the first time you referred to looking at other social infrastructure assets and not just health assets. What type of asset might that entail?

I think we've always given ourselves the opportunity within the mandate to consider opportunities in social infrastructure outside health care and early learning. We're not signaling anything at this particular point in time to say there is a message here about a particular sector that we're pursuing. What we were trying to do with this slide, in particular, is give you a sense, we are looking broadly, but the fundamental characteristics that we're looking for in any investment are very clear and aligned with our investment objective. And we think the Bendigo Health acquisition from December gives you a really good sense about where we are focused in terms of sort of lease and property characteristics.

Okay. That's clear. Last one. Just on Slide 19, the reforms to enhance safety. What kind of impact, if any, do you anticipate to have or this will have across the portfolio? I mean, for example, higher operating costs for operators, what might that mean for rents, for example?

Yes. Thanks, Cody. I guess the first principles, the government introducing and more focus on quality is right. The couple of incidents that we've seen report, we sort of share that community distress with that. But it is unlikely that we'll see anything that's going to bend the ultimate objective of the childcare sector that is a well-performing, easily accessible, affordable and quality. So the types of things that are coming out of state and federal governments at the moment are focused on things like CCTV, things like repeated offenses against community expectations maybe being penalized, but that will ultimately be a good thing. Higher quality will be better for communities. And as Justin pointed out, the rental revenues at its lowest point at the moment, there's room in there for any additional operational costs that might be associated with it, it's probably going to be a bit around labor.

The next question will come from Simon Chan with Morgan Stanley.

I've managed to go through the development pipeline that you've reported over the last 5 to 10 years. Never have you had 29 projects in the pipeline. Never it's been that massive. Is this just a pure fluke as in a point in time? Or is this a sign of things to come where as funding cost comes down, you guys are going to look to ramp up on development projects in a more big fashion?

I think there's 2 parts, Simon, to answer that question. The first part is, I think Arena has been positioning for growth over the last couple of years by bringing on some additional resource that has allowed us to pursue and execute more opportunities. So, we've got the team to do it. The way that we're doing that is the same way that the business has done it over a long period of time. We're kind of trying to make that really clear. The way that we structure on fund-throughs aren't changing the risk profile, and we're doing this all on the basis of our traditional 20-year standard form lease. So, we're really comfortable with the product. I think you're right in saying, though, as we enter this part of the cycle that we are seeing opportunities to secure more of a development pipeline when funding costs are coming off, and that is going to make those leases more attractive ultimately in the long term. So, we're comfortable that it's part of what we're doing as a strategy going forward, and we've certainly got the team to be able to execute them.

Sounds good. And just one thing to clarify. Your WALE extended by 0.4 years despite the passage of time. Can I assume that's just simply because you've got new assets going in with 20-year WALE and therefore, that's increased the WALE? Or has there been some negotiation that's taking place over last 6 months?

There's a mix of both there, Simon. So as I was trying to draw out in my piece, we're really focused on taking opportunities to extend that WALE, knowing that over time that it obviously erodes. So in answering your question, yes, we've got some new assets dropping in there, but we've also been actively looking for opportunities to negotiate lease extensions. Part of that, we look for opportunities that might be to rentalize a bit of CapEx or things like that. It's always on our minds to effectively push WALE where we can.

Great. Just one last one. And Rob touched on this in answering the previous guy's question. So, net rent to gross revenue is now less than 10%, I think, at historic lows. Do you think that means you guys are actually under-rented across the whole portfolio? Or do you think because other costs have gone up such that there's probably less propensity for rent revenue to get back to the 11% to 12% range going forward?