Arena REIT (ARF) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Arena REIT Half Year 2024 Results. [Operator Instructions] I would now like to turn the conference over to Mr. Rob de Vos, Managing Director. Please go ahead.

Good morning, everyone, and a very warm welcome to Arena REIT's First Half Financial Year 2024 Results Presentation. I'm Rob de Vos, Managing Director of Arena; and joining me is Gareth Winter, our Chief Financial Officer. Today's presentation will highlight Arena's achievements over the last 6 months and provide an update on our views on the social infrastructure property market and in that context, the performance of the business against its investment objective and strategy. Gareth will provide detail on Arena's financial results and capital management position and I'll finish the presentation by discussing the portfolio and sharing my thoughts on Arena's outlook in the current investment environment. As always, we'll have plenty of time for questions at the end and we recognize that it's a busy reporting day. So if you do need to drop off the call and have a question for management, please don't hesitate to contact Sam, Gareth or I directly. The 6 months to December, much like all of financial year '23 was characterized by a real estate investment environment that was challenged by higher interest rates and the development and acquisition market that was slow to respond to market changes in investors' costs of capital. Arena has entered this new period in a strong position with profitable tenants, solid rental growth and a balance sheet that has capacity to pursue new opportunities that are consistent with our purpose and investment objective. Highlights for the first half of financial year '24 -- and I'm on Page 3 for those that are following the presentation materials -- include a statutory profit of $19 million and an underlying cash-based net operating profit of $31 million, which is up 3% on half year '23. Our net asset value per security was stable as an increase in portfolio capitalization rates was offset by increases in passing and market rents. We've completed 3 early learning center development projects and replenished the development pipeline with a further 7 projects that will support future earnings growth. We've made good progress on our sustainability programs, achieving all of the targets on our sustainability-linked loan and advancing our solar renewable energy projects that are now installed at 88% of the portfolio. Underpinning Arena's performance and positive outlook is the growing community demand for the essential services that our tenant partners provide and we can see that increase in demand with record underlying operator occupancy across Arena's Childcare portfolio. Partnering and understanding the needs of our tenant partners and the community demand for their services has allowed us to achieve efficient long-term earnings growth and we're pleased today to reaffirm distribution guidance for financial year '24 of $0.174 per security, reflecting an increase of 3.6% on financial year '23. Moving on to the next slide. And in an environment where we anticipate new opportunities to start to emerge, we remain committed to our strategic discipline and with a clear focus on our stakeholders' needs and our investment objective. Highlights over the 6 months to December across key management focus areas are that we've maintained a long weighted average lease expiry for the portfolio of 18.8 years through lease renewals and the delivery of WALE accretive new projects during the period. We've seen the portfolio passing yield expand by a further 10 basis points over the last 6 months to an average portfolio yield of 5.26%, so that the negative valuation impact of this has been mitigated by passing market rent growth across the portfolio with the average like-for-like annual rent increase for the period of 5.4%. The portfolio continues to have high occupancy at 99.7%, which is a testament to the quality of our assets, the community demand for the services we accommodate and the proactive management efforts of our tenant partners and the Arena team. We completed 9 market rent reviews in the period, all of which reached the maximum outcome of 7.5% increases. We've made further progress with our renewable energy projects, collaborating with our tenant partners to install solar systems and reduce the energy intensity of our portfolio. These initiatives are lowering utility costs for our tenants at a time of significant increases in other operating expenses for their business. We completed 3 early learning center development projects for a total investment cost of $22.7 million. These projects will deliver a net initial yield of 5.4% on all costs, including transaction costs and we've also expanded our development pipeline with the acquisition of 7 new early learning center development sites. Each project has been precommitted to a new 20-year triple net lease to existing tenant partners and the average yield on completion for these projects is 6.3%. Moving on to an update on our sustainability programs on Slide 5. And we believe that Arena's focus on sustainability across everything we do best positions the business and our stakeholders to achieve positive long-term commercial outcomes. We have a disciplined investment process and being an internalized manager with strong governance protocols means that we are aligned with investors for the long term, which facilitates sustainable growth and quality in our financial metrics. Arena's portfolio facilitates access to essential community services that provide a positive social impact and we work with our tenant partners to invest the capital necessary to provide efficient, flexible and well-located accommodation at sustainable rents, allowing them to focus on their core purpose and for us collectively to deliver better communities together. Some of the specific sustainability outcomes we've worked on and achieved over the last 12 months include achieving zero organizational Scope 1 and 2 emissions and a 13% reduction in the intensity of Arena's Scope 3 emissions for assets under management and facilitating a material increase in the use of renewable energy across the portfolio, reducing our tenant partners' utility costs and reducing negative impacts on our environment. Further detail in relation to these achievements and our other sustainability activities and future goals are available in our Annual Sustainability Report and on Arena's website. I'll now pass you over to Gareth to provide detail on our financial results.

Thanks, Rob, and good morning, everyone. Just turning to Page 7 of the presentation, you will find a summary of Arena's operating income statement for the half year, which shows the 3% increase in net operating profit of $31 million and a strategy profit of $19 million. There is a reconciliation of net operating profit, statutory profit in the appendix of the presentation with the most substantial reconciled items being the periodic revaluation of investment property and derivatives. Operating EPS of $0.087 is 1.5% higher than the prior comparative with the key driver of the increase in operating profit being the 7% increase in Property income, offset by an increase in finance costs. The underlying increase in Property income is closer to 9% when normalized for the sale of the 2 health care assets early in calendar 2023. Our earnings growth is normally weighted to the second half of the financial year and we expect that to be the case in FY '24 as well. The increase in Property income is derived from a combination of the rent review and capital deployment. Like-for-like rent reviews averaged 5.4% in the period, noting that 95% of rent reviews in FY '24 have a minimum review of CPI or market reviews. The annualization of the FY '23 CPI [indiscernible] provided further protection to FY '24 cash flow as an offset to the annualization of the rapid increase in interest rates in FY '23. Arena's ongoing program investment in ELC developments contributed to earnings via capital deployment, including in addition to the annualization of rent from the FY '23 completions, the completion of 3 ELC developments during the period with total project costs of $23 million. Rent collections and tenant rent affordability remain resilient and $300,000 of COVID related deferred rent was collected during the period in accordance with the credit payment terms. All COVID-related rent deferrals have now been collected in full. Just looking at a few other line items. Not a lot of change in Property expenses. They're slightly lower than the prior comparative when there was still some catch-up required for post-COVID Property inspections. There's been a modest increase in cash-based operating expenses compared to the comparative period. Managing costs in a relatively high inflation environment has been a priority with the increase largely due to variation in staff and remuneration mix and some IT security projects. Pleasingly, on a normalized basis, Property revenue increased by around $3.4 million in the period, while operating expenses increased by $200,000 and our cash-based MER remains around 30 basis points. The $1.7 million increase in finance costs is due to a combination of changes in both rate and volume. Overall, the increase in average rate from the annualization of FY '23 rate increases contributed to around 70% of the increase in finance costs while average volume of drawn debt and the increase in facility capacity in early 2023 contributed relatively equally to the remaining increase. Capitalized interest on the development book for the period was $1.5 million, which was slightly less than the comparative period of around $200,000. The lower statutory profit in the half of $19 million is primarily due to negative asset revaluations of $4 million in the period compared to $18 million positive revaluation in the first half of FY '23 and derivative valuations of negative $6 million just reflecting the yield curve at the time. We've paid a distribution of $0.087 for the first half, representing growth of 3.6% on the comparative period. Our baseline assumptions for FY '24 guidance are tracking close to expectation and we have reaffirmed our full year FY '24 distribution guidance of $0.174 per security. We expect that the FY '24 payout ratio will be consistent with recent years. What is apparent is that the CPI-based rent review mechanisms in Arena's leases have been effective in offsetting the increase in debt funding costs and still demonstrating growth in earnings and distributions. Turning to the next slide, where we have a waterfall chart to showing EPS changes during the period, noting that the impact of the growth being the CPI-linked rent reviews and deployment of capital into development. And this is offset by the health care asset sales from early 2023, the funding cost and operating DRP. The relativity of each component is a little different in FY '23 and FY '24 as rent reviews have contributed more than recent history and the development slightly less, which is to be expected given the interest rate and inflation environment we've experienced. Turning to Page 9. This slide presents a summary of Arena's balance sheet. The full balance sheet is in the appendix of the presentation. The key points here are the 2% growth in investment property, primarily due to the $33 million invested in developments during the period, offset by the asset revaluations of negative $4 million and a single asset sale of $3 million. New investment CapEx in FY '24 continues to remain a little below our run rate in recent years, which reflects the investment discipline in patients in a market that has been in a period of transition on pricing to accommodate the new cost of funds. But with relatively low gearing of 21.7%, which remains well below our maximum gearing range of circa 35% to 40%, we have retained substantial capacity to fund the existing pipeline and development and actively consider growth opportunities. Turning to Page 10, capital management summary. Our approach to capital management is directly linked to our investment objective of predictability of distributions of scope for growth over the medium term. Accordingly, we have prioritized resilience and risk reduction through relatively low gearing, high levels of hedge cover, regular extension of debt facility term and maintaining immediately available liquidity in excess of our development commitments. The consistent execution of our capital management strategy, combined with the natural inflation protection provided by a large volume of rent reviews directly linked to CPI outcomes has protected our net operating income in an environment where inflation and interest rates materially increased in an extremely short time frame. We have maintained $144 million of immediately available liquidity to cover the $67 million of development commitments at 31 December. This liquidity in combination with our modest gearing is allowing us to actively consider new investment opportunities. In FY '23, we developed a sustainable finance framework and introduced a sustainability-linked loan overlay on the debt facility with a range of targets across our solar program, emissions reductions and Modern Slavery. There is a modest pricing adjusted in relation to those targets and those outcomes were measured for FY '23 post June 23 and the targets were fully achieved. Weighted average debt term is 3.2 years, noting that the first expiry is not for over 2 years in March '26. You'll see us extend that term in line with our unusual practice when appropriate, as you have seen in recent years. Our all-in weighted average cost of debt had a small increase in FY '24 from a spot rate of 3.95% to 4.1% at December. The weighted average cost of debt quoted is all in and includes the cost of undrawn facilities. The change during the period reflects the increase in pricing on floating rates over late FY '23 and into FY '24 and also a slight reduction in the relative proportion of hedging. The primary objective of our hedging program is smoothing rate changes through the cycle, with a substantial and rapid increase in floating rates during FY '23 mitigated by our practice of holding consistently high levels of hedge cover with the stated expiry profile. At 31 December, we had hedge cover of 80% for a remaining weighted average term of 3.1 years and a weighted average rate of 2.03%. As the development pipeline is funded, we expect hedge cover will remain in a normal range of 70% to 80%. And finally, it is important to note that Arena continues to operate with substantial headroom in both our ICR and LVR covenants. With that, I'll pass back to Rob, who will update us on Arena's Property portfolio.

Thanks very much, Gareth. I'm now on Page 12 of the presentation. As of 30 June, Arena owned 275 properties across Australia with a value of $1.54 billion. The portfolio is just over 73 hectares in area and predominantly residentially zoned with improvements that are purpose built for our tenant partners. The portfolio accommodates approximately 30,000 families in their early learning needs. Our Healthcare portfolio contributes to meeting the lower acuity health care needs of a further 6 communities as well as the high acuity needs of 35 people with high physical support needs in our SDA portfolio. The growth in the demand for the essential services we accommodate along with both [indiscernible] and our tenant partners disciplined and proactive management programs has resulted in the portfolio being in a strong position. At 18.8 years, the portfolio has the longest contracted REIT profile in the Australian REIT sector. We have an exceptionally strong occupancy record. The portfolio has low single asset concentration with the largest single asset accounting for less than 2% of the value of the portfolio and the land and building rate that is dividing the current balance sheet market value of the portfolio into the site area equates to just under $2,200 a meter, which continues to look like compelling value when measured against other real estate sectors. Passing yield is 5.26%, which has seen a further expansion of 10 basis points in the last 6 months. And despite a growing likelihood that we're at peak or near-peak interest rates, we continue to expect to see further short-term yield expansion in real estate markets, including the social infrastructure property sector. And you can see in the appendix of our presentation that early learning transaction yields remain at a low premium to a risk-free proxy such as Australian government bonds as compared to the long-term average. A mitigating factor for yield expansion is net property income growth, for which the portfolio is very well positioned, not only as a result of current strong trading conditions for our tenant partners, but also our long-held focus of ensuring our starting rents headroom for growth. The results of the market rent reviews completed in the half, each hitting their cap is evidence of the strong rental growth we are seeing. Geographically, we have 80% of the portfolio located in the high population eastern seaboard states with a relatively minor increase in overall exposure to South Australia in the period following development completions. In terms of tenant diversification, we continue to improve the diversification of tenant partners, now totaling 36 with 24% of Arena's income supported by Australia's largest early learning provider, Goodstart. Moving on to the lease expiry and with some minor leasing programs underway on 2 small health care suites, one of the suites is in holdover in negotiation with a sitting tenant and the other is in the market available for lease. As you can see in the graph on this slide, we have less than 3% of the portfolio's income expiring prior to 2031 and over 52% of all lease income expiring after 2040. These are very long-term cash flows that have contracted annual escalations providing inflation protection in a higher inflation environment and real growth in a lower inflation environment. All of the leases are triple net with no exposure to variable property expenses, so highly efficient and highly predictable. Moving on to our rent review profile on Page 14. The average like-for-like annual rent escalation for the 6 months ending in December was an increase of 5.4% with just over 9.4% of the portfolio's income, which relates to 38 Childcare properties that are subject to a market rent review this financial year. We've completed 9 of those reviews, again, each of them reaching a 7.5% increase, which is the maximum permissible under each of those leases. Of the remaining 29 market rent reviews to be completed, 20 is subject to a cap of 7.5% increase whilst the other 9 properties have no cap on an increase. We're anticipating further short-term growth in market rents of Childcare properties as a result of generally strong operating conditions characterized by higher occupancy and typically higher than inflation increases in daily fees, which have been subsidized by additional government funding across the Childcare sector. Whilst labor costs, utilities, consumables and other costs are also increasing for our tenant partners, on average, the affordability of rent across our portfolio has remained stable with an accommodation cost of 10.6%. Moving to Page 15. After widespread challenges in the development construction sector through financial year '22 and '23, we are beginning to see early signs of improvement with construction cost inflation appearing to moderate in the first half of financial year '24 as a result of better access to materials and labor. We were pleased to complete 3 early learning center projects in the half, 2 of which were located in Metropolitan Adelaide and one in Metropolitan Melbourne, all with existing tenant partners. Each project was designed to suit each of the individual tenant's operations. And pleasingly, each of those projects are operating in line with [ Al ] and our tenant partners' expectations in the first few months of trading. We've secured a further 7 new early learning center development projects that will complement the portfolio and deliver future earnings growth. These 7 projects have an initial yield on all costs of 6.3%. So pleasingly, we're starting to see development project yields better reflect changes in market costs of capital. Looking forward, our development pipeline has 18 Childcare projects that are located in Western Australia, Queensland, Victoria, South Australia and New South Wales, with a total forecast cost of $117 million, of which we have capital expenditure outstanding of $67 million. We anticipate that the average yield -- initial yield on all of the costs, including transaction costs for these developments will be 5.7%. Each of these development projects are being undertaken on a fund-through basis where Arena has contractual protection from cost and time variability. We've secured agreement for leases with existing tenant partners on every project on our standard 20-year triple net lease format. Arena is a development partner of choice in the early learning sector. In the last 10 years, we've developed 73 Childcare developments for 14 tenant partners, which have been undertaken in all states and territories, with the exception of the ACT. These projects have increased access to early learning services for Australian communities for over 8,200 children and provided our investors access to an excess of $30 million of current annual rent. Moving on to the next slide. In line with developed countries around the world, demand for early learning services continues to increase as a result of changing community expectations, population growth and an increase in female workforce participation. Additional funding to the sector was introduced by the Australian Federal Government in July, which was designed to increase the use of Childcare and in doing so provide a significant economic and social return to Australia, including workforce -- increased workforce participation, better economic security and particularly for women and improving the lifelong learning prospects of children. It is apparent from now tenant partners' occupancy data that this investment has had the desired effect of increasing Childcare participation and it is our expectation that demand for services will continue to increase in the short and medium term. A shortage of appropriately qualified and experienced educators remained a challenge across the sector, albeit not as acute as it was through financial year '23. As a result, we anticipate that labor costs will continue to increase in the short term, which added with increases across consumables, regulatory and accommodation costs for early learning operators will lead to further increases in daily fees. In relation to the supply of new centers, there was a net increase of 313 centers across Australia in calendar year '23, an increase of about 3.6%. Even though we're seeing relatively strong trading conditions for operators, we expect that net new supply is likely to be constrained in the short term due to high cost of establishing new services and investors having higher investment return hurdles. Moving to the next slide. The federal government has instructed both the ACCC and Productivity Commission to undertake reviews to assess and provide recommendations to improve affordability, inclusion and quality of early learning services for Australian families. The ACCC released its final report earlier this month, which found that the Australian childcare market could be categorized as having areas and cohorts that are adequately served, underserved and unserved. It is the ACCC's view that these categories will each require different levels of government support and market stewardship to meet the needs of local communities and provide a more equitable childcare system for all Australian families. The ACCC's final report provided recommendations that included that the federal government should consider and restate its key objectives for childcare. Simplifying the Childcare Subsidy, particularly the current hourly rate and activity test measures and to consider how governments at all levels can influence the attraction and retention of educators, better monitor and regulate the sector and assist in supply-side subsidies to support inclusion and better outcomes for children and families, particularly in underserved and unserved markets. The Productivity Commission released its draft report titled A Pathway to Universal Care in November last year. The draft report recommends the Australian Government provide access to 30 hours a week of high-quality childcare services for all children under 5 years of age. In making that recommendation, the Productivity Commission notes that it will require tackling availability, affordability and inclusion gaps in the current system. Preliminary modeling from the Commission shows that increasing the top subsidy rate to 100% for lower income families and relaxing the activity test for all families will lead to an estimated 12% increase in the demand for childcare services and a 3.4% increase in total hours worked in the Australian economy. Both the ACCC final report and the Productivity Commission's draft report are consistent with the federal government's commitment to implement cheaper childcare, boost workforce participation and drive productivity growth. All positive drivers for future demand the accommodation that Arena develops, owns and manages. Moving on to the next slide. So in that market context, Arena's early learning portfolio remains in a very strong position. We are 100% occupied and our tenant partners' average underlying business occupancy is the highest on record. Average daily fees have increased to $140 per day as of September, up 10.5% from the prior year and over 8.5% since March. Whilst these are material increases, they remain below the government's benchmark daily fee of $151 per day, which is indexed to inflation. As you can see on the graph at the bottom of this page, the government funding package continues to suit our early learning center portfolio, which is curated towards middle-income families. And to give you some context, 80% of our early learning centers have daily fees under the government's Childcare Subsidy benchmark fee as of September. Our average rent per place across the portfolio has increased to $3,000 per place and as we've developed more than 1/3 of the portfolio over the last 10 years, remains highly affordable in our view. Despite strong rent increases across the portfolio, rent affordability for our tenant partners as measured against gross revenue has remained stable at 10.6%. Moving on to the next slide. Arena's Healthcare portfolio continues to perform to expectations and we continue to be attracted to the right new health care opportunities, our investment thesis being that the community demand for health care services and the infrastructure to facilitate access to those services will increase as a result of Australia's growing and aging population. And the governments alone will not be in a position to support that growing community need. We are mindful of short-term challenges in the sector, but we do see a growing likelihood of opportunities arising in the medium term. In our usual disciplined way, we will patiently look to deploy capital on the right opportunities where we are targeting quality over the long term that will support our purpose and investment objective. Moving on to the outlook. Today, we are reaffirming full year distribution guidance for financial year '24 of $0.174 per security, an increase of 3.6% on financial year '23. The portfolio is in a strong position. Our Healthcare and Childcare investments are performing to expectation and underlying occupancy for our childcare tenant partners is at the highest position on record. We have solid rental growth across the portfolio and an 18.8 year WALE with a transparent and highly predictable rental profile. Future income growth will be underpinned by contracted annual rent increases, including market rent reviews as well as the impact of our financial year '24 acquisition and development completions. Looking forward, Arena's outlook is positive. Early learning and Healthcare services are integral to economic stability and improving community outcomes. And those themes underpin Arena's portfolio value and investment objective of providing long-term predictable distributions to our security holders with prospects for growth. We have a balance sheet capacity to patiently take advantage of new opportunities that are consistent with our strategy, with gearing at 21.7% and no debt expiring until March '26. And our experienced management team has strong industry relationships and in-house development and origination expertise that will assist us in sourcing future opportunities and exploiting price dislocation in a new investment environment. In closing, I'd like to thank our team and our tenant partners for contributing to the positive outcomes that have been achieved in the first half of financial year '24. I'll now pass the call back to the operator to open up for questions. Thank you.

[Operator Instructions] The first question comes from Caleb Wheatley with Macquarie.

Couple of questions from me. The first one is just on the development book. So you're on cost clearly improving, those 2 projects being added at 6.3%. Just keen to hear how tenants [indiscernible] further expansion from here? Any additional color you can provide on the sort of pricing on new developments you're discussing at the moment being considered at, please?

Yes. Thanks for the question, Caleb. So we're still definitely seeing network expansion being discussed and thought through from tenant partners. I guess the challenge for us has been those input costs for developments have been high relative to early years, which has meant to achieve higher yields. We've been looking at increases in rent. We've been more comfortable with those increases in rent as a result of, I guess, daily fees being increased as well as the occupancy. So we're seeing a healthy tenant market there. And we are seeing early signs, as I mentioned, of some of the input costs starting to come down or at least flat or not have as much inflation. So yes, definitely demand out there. I think the other thing I'd point out is that we're starting to see more discussions from smaller developers that have been holding land for some time and getting caught on holding costs. So we're seeing enough deal flow coming through the door. The challenge is always making sure that we set rents at a sustainable amount for our tenant partners that does [indiscernible].

Yes. And with all of those phases going into particularly on the rental side, is 6.3% that level we should be thinking about on a go-forward basis? Or is it still room for improvement, do you think?

I think there's somewhere between 6.25% and 6.5% is kind of where we've been putting new business and I think that feeling comfortable for us and tenant partners at this point.

Great. That's really helpful. My second question, just around your comments on particularly direct to market valuations in ELC remaining really strong. Conscious that you've got a lot of balance sheet capacity up to 35% to 40% you've spoken to previously. But is there any opportunity to maybe take advantage of that market remaining really tight and selling down some of the older relatively underperforming assets in the current portfolio at all?

Yes, there's always, always the case. I think this is probably the first half. We haven't actually had divestments. We did quite a lot of divestments, particularly in health care in the last period, as you'll remember. But we did do a lot of cleaning up. We're watching -- we've obviously got the benefit of every one of our properties providing operating data and feeling comfortable with the positions we've got. Frankly, we're starting to see more transactions. We expect to see more transactions. And as I mentioned, we're expecting perhaps yields to push out a little further from where they are at the moment. And frankly, we'd rather be buyers than sellers in a market where we've got perhaps competitors selling assets. So that's one point. But look, there's always room for sort of trimming, Caleb. So you certainly expect us to continue to do what we have in the past is sell a few out and then recycle those proceeds back into development projects.

Great. And my final question is just on the health care side. So you flagged that there's a potential that some of those opportunities are starting to look more attractive. Is that more around the tenant side, improving outlook for tenants? Or is that a pricing movement you're starting to see? Just kind of get a little bit more color on what's giving you the confidence or the expectation that you had that there could be some opportunities to come up in that?

It's more the latter. It's actually -- I think the pricing is starting to come back into frame. We've always been attracted to the macro and health care, [indiscernible]. We thought that the sector got bid up too high over the last couple of years, we're starting to see a retreat on some of that in some areas. But as I pointed out, we're in a fortunate position, we can be patient and watch that if that does come, we're certainly ready to participate.

The next question comes from Steven Tjia with Barrenjoey.

Just a follow-up on the development. Could you just expand on what the dollar cost per place is for these new projects?

So you're probably better looking at sort of rental is probably a better example. Steve, I'll probably give a bit of context here. So rentals are sort of pushing out around that sort of high 3%s and into 4%s and in some instances, over 4.5%. That's probably been a bit of a red light for us previously, as a sort of prior call. But it's now sort of the new norm. If you looked at anywhere in Australia at the moment, it's pretty hard to sort of develop new stock at under sort of 4.2% to 4.5% for 100 place center. So we're getting used to that, but that's about where on a rental basis is and you can sort of work back from the yield about what that looks like on the capital cost, but that's, I think, the important metric that we should be looking at.

Yes. Great. And on the leasing spread, obviously, there's a strong outcome there. If there was no cap, where do you kind of expect those leasing spreads could have been --

Yes.

-- given that revenue seems pretty sustainable?

Yes, that's a good question. We -- it's a bit of a mixed bag on the ones that we completed. So all of them are over 7.5%. Some sort of dribbled over, some were a bit higher. And that's got to do with location and levels of profitability and all things that sort of go into that. But I think it is direction -- directionally, there is more market rental growth in the system and we do feel comfortable that at a gross accommodation cost of 10.6%, there's room there for operators. It is sensible, I did try and emphasize on the call, but there are other expenses that our operators are sort of dealing with at the same time, not only accommodation costs, but labor, primarily going up too. So we are mindful of all of that in our usual way to be careful about where we're sitting initial rents.

There are no further questions at this time. I'll now hand the call back over to Mr. de Vos for closing remarks.

Thanks very much, everyone, for your attendance on the call today. I look forward to seeing many of you over the coming days and weeks. Please don't hesitate to call Sam, Gareth or I if you've got any further questions. Thanks very much.