BWP Trust (BWP) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for holding, and welcome to the BWP Trust 2020 Full Year Results Briefing. [Operator Instructions] I'd now like to hand the call over to the Managing Director of BWP Trust, Mr. Michael Wedgwood. Please go ahead.

Good morning, everyone, and welcome to our full year results teleconference. We've released to the ASX this morning our full year results announcement, our annual report and the presentation slides, which I'll go through now. And after that, we can take some questions. Andrew Ross, our Head of Property; and David Hawkins, our Finance Manager, are also on the call. I'm in Melbourne, and they're in Perth. I think [ they probably won first prize ] for that at this moment, but we will talk a bit more about that later on. If we go to Slide 5, which summarizes our full year outcomes, while the second half of the year was dominated by COVID-19, our focus during the year, was on the existing assets in the portfolio in terms of upgrading stores occupied by Bunnings were required, repositioning assets exited by Bunnings and improving the zoning on properties in the portfolio. The trust was well positioned at the start of COVID-19 with a strong balance sheet and with a significant majority of our rental income exposure to Bunnings and other national retailers. Our total revenue was flat for the full year, and that was after taking into account portfolio rental growth, the impacts of divestments in the prior year, some store repositioning and some deposits on 2 property sales that didn't proceed and also the impact of the straight-lining of rent on a comparative basis. Distributable profit for the full year was up 1%, and the main driver of that was a further reduction in funding costs. Full year distribution grew 1% to $0.1829 per unit, in line with the distributable amount. NTA for the year or for the 12 months has grown by about 5%, and that's mainly due to increases in the value of a number of properties in the portfolio particularly in the first half of the year. The trust property portfolio generated 2.4% like-for-like rental growth on an annualized basis, and that takes into account average inflation on our CPI-linked leases of 1.6%. The portfolio capitalization rate was 6.08% at 30th of June, and that's unchanged from the 6 months prior at 31st of December. There was only one Bunnings Warehouse sold in the second half of the year, and we believe that traded on a cap rate of below 5%, and it was sold in Sydney. Portfolio WALE for the trust at 30th June was 4 years, and that's slightly below what it was in the -- at the year prior. During the year, we completed capital works for the repositioning of our ex-Bunnings Hoxton Park property in Sydney, and our ex-Bunnings Port Macquarie property. We also completed the upgrade of the Bunnings Villawood store in Sydney and agreed terms with Bunnings on a further 3 store upgrades. At 30th of June, there were 75 properties in the portfolio with 98% occupancy. Gearing at year-end was just below 20% with a lower cost of debt of 3% as at that date. We've been holding higher-than-usual amounts of cash during COVID -- during the first phase of COVID. So our debt levels have been slightly higher than they would have otherwise have been. If we now turn to Slide 6. In the period to 30th of June, Bunnings and the significant majority of the trust tenants were able to stay open and operate unrestricted by the COVID requirements that were in place. Wesfarmers released a trading update on 9th of June, which showed the strong trading performance of Bunnings during COVID-19 as indicated on the slide. The trust has a small number of tenants such as gym operators that were impacted by COVID mandatory closures and most qualified under Code of Conduct legislation. The trust received approximately 99% of rent due in the period of March to the end of June 2020. Rent abatements of approximately $436,000 were provided during that period. I'll talk about the stage 4 restrictions in Melbourne at the end of the presentation. If we go to Slide 7, I'll just talk briefly about our climate and risk and sustainability actions. Taking into account the nature of the trust's properties, our primary focus from a sustainability perspective is on improving the energy efficiency of our buildings. At year-end, 89% of the portfolio had LED lighting in part or all of the property. Now 19 properties have solar installed, and 92% of the portfolio has water recycling capability. We've installed a Tesla battery at a Mandurah property in WA to store surplus energy from the solar installation at that property, and that surplus energy is going back into the grid. The quantum of excess energy produced at the Mandurah property exceeds the energy utilized by the trust elsewhere in the property portfolio, and that takes into account that most of the energy used, particularly by Bunnings is accounted for by Bunnings. In terms of climate risk, we continue to assess each property in our portfolio on an annual basis. In terms of client risk, we are making progress with the implementation of relevant task force on climate-related financial disclosure recommendations, and we're currently finalizing our scenario modeling in terms of 2- and 4-degree temperature increases. If we now turn to Slide 9, we show some of the -- or a summary of some of the aspects of the trust's financial performance for the year ended 30th of June, and that's compared to the prior comparative period. One thing to note there, management expense ratio has gone up slightly. We did have a remaining management fee waiver in place in the prior year, which are no longer applied in this year. So that's the difference between the 2 percentages. On Slide 10, we provided just a summary on a 6 monthly basis, and I can take any questions on that if you have any at the end. And on Slide 11, we show a summary of financial performance of BWP for the last 5 years. If we go to Slide 13, we show the outcomes of 7 Bunnings market rent reviews that were finalized during the period. The overall outcome of those market rent reviews was slightly positive, which is broadly in line with our view that the overall portfolio rent is broadly at market. There were a range of individual store outcomes driven mainly by the availability of market evidence relevant to where those stores operate from. We had good outcomes at Coburg and Port Melbourne, where there was market evidence to support increases, and we had slightly negative outcomes at Belrose, Balcatta and Tuggeranong in Canberra, where the rents were already full, and there was no new market evidence to support higher outcomes. On Slide 14, we just show what made up rent reviews for the year in addition to market rent reviews that related to 2020. There were also a number of CPI increases and fixed increases for the year. We do still have a number of market rent reviews in determination at present. As we've said before, it's a process that does take time, requires a lot of work to ensure that relevant market evidence is taken into consideration. Some of those rent reviews have been outstanding for a while. We do expect a number to be finalized in this current period. So by the time we get to our next result period, we'll -- we expect to have a number of those sorted out. On Slide 15, we just show the makeup there of our like-for-like rental growth calculation, which for the year is 2.4%, including 1.6% CPI. You can see there on that slide that if you look at average like-for-like rental growth over the last 4 -- 5 years, it's been about 2.3% per annum. So this current yield is broadly in line with the 5-year average. And obviously, going forward, wherever CPI ends up will have some impact on what that number looks like as we progress through this year. On Slide 16, we've just provided an update of our -- of the Bunnings Warehouse transactions and the cap rates that they've transacted on. There has only actually been 1 transaction that we've been aware of in the last 6 months. 3 of the last 5 sales of Bunnings Warehouse stores, including the most recent one, have been at cap rates below 5%. One of the 2 sales that traded on a cap rate above 5% was an older property with a shorter remaining term certain, and the other one was a regional property. Slide 17, with -- I'll just talk briefly about our June 2020 portfolio revaluation. As mentioned in the highlights, the average cap rate of the portfolio at year-end is 6.08%, which was unchanged from the previous reporting period. There were 14 independent valuations undertaken during the last 6 months and 61 internal valuations. Cap rates on 3 properties tightened, 67 remained the same, and cap rates on 5 properties increased. Cap rate compression occurred at Hoxton Park on completion of its repositioning for large-format retail and for Maribyrnong and Craigieburn in Melbourne, which were adjusted to market by independent valuers. Where cap rates expanded, these were mainly for the properties that Bunnings has or is proposing to move out on it, and it's just adjusting the valuation as it gets closer to lease expiry. On Slide 18, we've shown the results of the independent valuations during the 6-month period. You can see there the movement in cap rates for Craigieburn, Hoxton Park and Maribyrnong. And you can also see on that table that the Mindarie cap rate was increased, and that is to reflect the fact that the property is getting closer to the end of the Bunnings lease and that the rest of the properties were unchanged. On Slide 20, we just provide there a summary of the characteristics of the property -- of the properties that we included in our core portfolio. The 68 properties exclude any stores currently being repositioned, which I'll talk about. But it does now include Port Macquarie, now that capital works have been completed at that property, and the majority of the leasing is finalized there. Slide 21 shows the weighted average lease expiry profile for the core portfolio. The majority of expiries in the next few years are newer stores. And on average, we expect it to be more likely that further options will be exercised particularly for these properties given their relative size and amenity versus Bunnings' newer stores. On Slide 22, we show the properties or the core portfolio properties that are reaching the end of their current lease period in the next 3 years. I'll note that 5-year options were exercised for Fountain Gate and Port Melbourne in the first half of the year. And more recently, 5-year options have been exercised for Northland, Vermont South and Coburg. So those stores are no longer on that list. And also, a 5-year option was just recently in the last couple of weeks exercised at Hawthorn in Melbourne as well. We have had previously advised that Melbourne -- sorry, that Bunnings is seeking planning approval for a site near our existing Northland property. Bunnings hadn't obtained planning approval for that alternative property by the time the option was required to be exercised. So it's committed to our property for a further 5 years. We do expect Bunnings to leave our property at some stage, so we are working towards a longer-term alternative solution for that property. In relation to Midland, which was previously on this list, when we last reported, we indicated that Bunnings was looking to build a new store built nearby. Construction of that new store has now commenced. As such, we expect Bunnings to vacate the Midland property by the expiry of the current lease in September 2021, and we're working towards an alternative solution for that property. The only other property that there is a little bit of uncertainty about is Wagga, where we -- I believe there is potential for Bunnings to require a larger store at this stage where -- we're not certain about the timing of that. We're not aware of any other near-term vacancies at this point in time. And I mean, as we've done in the past, we will update when new information becomes available. On Slide 23, we just provide a summary of the outcomes of the Bunnings Villawood store upgrade, which was completed in November last year. On Slide 24, we've provided a summary of the terms that we've recently agreed with Bunnings for the upgrade of our Port Melbourne property, which will expand the trading area at that store by about 2,300 square meters. On Slide 26, we just indicate there the properties that we're currently working on for alternative use beyond Bunnings. With Cairns, we are working on a multi-tenanted development there. It did get slowed down a little during the earlier COVID stages, and we're sort of reactivating our work in relation to that property now. We have actually agreed a short-term lease with the state government for the Cairns-based national basketball team, Taipans, to play their summer season at the property. They normally play at the Cairns Convention Centre, but it's currently being renovated. We're not sure. We may have found another alternative use for expanding these properties, but we'll see how that one plays out in due course. In relation to Morley in Perth, we're currently working through the best solutions for that site. It's a very well-located property next to the Galleria Shopping Centre in Morley. It has flexible low -- zoning. And it's in an area that the state government wants to see developed. So we do think there is good potential for that property. We just got to find the right outcome. Underwood in Brisbane, we had previously indicated this property was under option to sell. That option agreement or the sale didn't proceed as some of the conditions precedent were not met. We did retain the $1.7 million deposit from that forfeited sale, and we're now working on alternatives, other redevelopment or divestment options for that property. The other property that was in a similar position is Belmont North, which is still leased to Bunnings until March next year. Again, that sale didn't proceed, but we did retain the $1 million deposit from that forfeited sale as well. And we are looking at an option to redevelop that property at the moment. Midland in Perth, I've already spoken about. Mindarie, and that's -- and Midland's leased until September next year to Bunnings, and Bunnings is still operating from it. Mindarie is still leased to Bunnings until September next year. As we've indicated previously, we have received approval for rezoning, and we are in discussion with a few parties in terms of the future use of the property. Albany is leased to Bunnings until October 2024. There is another Bunnings property being built in Albany at the moment, so we are looking at longer-term redevelopment or divestment opportunities for that property. And Northland -- no, I've already spoken about Northland. If we turn to Slide 28, we just provide a summary there of our current debt facilities. We did add to our 7-year bond or 7-year MTN earlier in the year to provide more liquidity during this COVID environment. We added another $50 million to that facility. Our cost of debt at 30th of June is down to 3% per annum. Slide 29, we show the current debt profile graphically. We don't have anything maturing in the short term. And on Slide 30, we just show there our remaining hedges. Most of our -- where -- all of our bond issues are fixed rate bonds, so most of our hedging is related to that now. If I now turn to Slide 32 and the outlook for BWP until the end of this financial year -- and I'll talk specifically about the Stage 4 restrictions in Melbourne in a moment. We do expect continuing COVID outbreaks. I mean it seems to be happening not only in Australia but everywhere in the world. So on that basis, there may be some further requirement for us to provide rental assistance for some of our tenants, depending what circumstances eventuate during this financial year. At this point in time, we don't expect any significant change in demand for Bunnings Warehouse properties given the strength of the Bunnings covenant. We believe that there is still fairly strong support for this particular property sector. Our short-term focus remains on our existing properties, particularly in terms of filling any vacancies in the portfolio. We've got a few store upgrades to progress, and we'll continue to exercise options where appropriate and completing the outstanding market rent reviews. And we'll also continue to look to improve the energy efficiency of our portfolio. While we are focused on the short term at the moment, and I think that is the priority not only for what we need to do in our portfolio but with the implications of COVID-19, we are still very active in looking for longer-term opportunities to add value to BWP. At this point in time, the trust could expect the distribution for the financial year 2021 to be similar to the ordinary distribution paid for the year ended 30th of June 2020, with capital profits being utilized to support the distributions necessary. With that being said, the distribution may be reviewed or the distribution guidance may be reviewed in the event that COVID-19 impacts are more severe or prolonged than we currently anticipate. In providing distribution guidance at the moment, we are seeking to provide some level of stability, not so much certainty. It is an extremely difficult environment to be certain of anything at the moment. We have a strong balance sheet, sufficient liquidity and the majority of our rental income exposure is to national large-format retailers with strong balance sheets, good business models, and they sell products that have been in demand throughout COVID. In relation to Melbourne, which is a very fluid situation, we have a small exposure to Code of Conduct tenants that are already being taken care of. All of our other tenants are required to pay rent whether they are open or closed. From our perspective, there are 2 main considerations regarding our tenants over the next 6 weeks or so, and that is cash flow and sales. In terms of cash flow, significant majority of our exposure is to national retailers with strong balance sheets. In terms of sales, the key consideration is whether sales are lost from store closure or deferred until the recovery period in 6 weeks-or-so time. In the case of a gym, as an example, it is clear that the sales are lost. For the majority of our other tenants, there should be a pickup in sales in the recovery phase. And thinking about impacts, we believe it's prudent to take into account the period and the lead up to the shutdown, during the shutdown and after the shutdown. It would take a while to see the full impact on sales of our tenants. Our rent exposure in Melbourne for the 6-week shutdown period is less than $6 million, which is less than 4% of our annual rental income. Most of that exposure is to Bunnings, as far as we are aware, and Wesfarmers have confirmed this in an announcement this morning, Bunnings is staying open for trade and drive or click and collect sales. Bunnings has adapted incredibly well through COVID. We would expect them to continue to do so in this next phase. We believe we are reasonably positioned at this point in time, but we remain very alert to the likely COVID-related impact from the economy in Victoria and the other states as we move forward. So that's all I'd like to say in relation to those slides. I'll hand back to the conference organizer, and we'll take any questions that you have.

[Operator Instructions] We have our first question in queue from Adrian Dark from Citi.

Maybe just picking up on those comments around Melbourne. You've been quite clear about the level of rent abatements provided in FY '20. Can you maybe touch on whether -- based on what you know at this point and acknowledging that the environment is uncertain, whether we should be expecting a larger amount in FY '21? Or whether that's reflected in your commentary on '21 guidance, please?

Well, Adrian, I mean, I can't say with any certainty at the moment. I mean certainly -- well there will certainly be more rent abatement from our Code of Conduct tenants. And I guess that's the only thing we have certainty of at the moment. But I think from my other comments, I think we've sort of reasonably -- well we're as clear as we can be in terms of what we think the near-term expectations are.

Okay. On the assets that were sold, and I suppose conditionally sold and the conditions precedent weren't met, are you able to clarify whether those outcomes occurred essentially pre-COVID or post-COVID [indiscernible] conditions weren't met?

Yes. They were pre-COVID and mainly is planning-related conditions that -- so pre -- they were conditional option agreements, so they weren't -- they only became a sale agreement if those pre-conditions were met, and they weren't, or they weren't met in the time frame.

Okay. But effectively no change as a result of COVID. It was independent.

No, that wasn't a contributor.

Okay. And then I think third and final one from me. You mentioned the market rent reviews are outstanding. Can you maybe touch on -- sorry, it seems your comment was that your current expectation was that the portfolio overall was rented around market levels. Could you comment on whether you are expecting any shift in market rent due to COVID or other conditions in your existing markets?

Well in terms of the rent review clauses, I mean they're very specific about relating to other similar market evidence of -- mainly of other Bunnings properties. So they're not -- there isn't any trigger or any -- anything in the rent review clause which references, I guess, any other event, whether it be a pandemic or any other events. So I guess on that basis, we are still relying on other market evidence in terms of determining what those market rents will be, and that process will continue as we move forward.

Okay. So still too early to form a view on that at this point?

Well I mean it's a function of other market evidence. So yes, I guess, whatever transpires with other market evidence. But I mean in theory, it shouldn't be directly related to anything that occurs through COVID. It will be a market-driven thing.

Our next question is from Tom Bodor from UBS.

I think it's fairly clear, and it's good to see things are relatively resilient. I just wanted to sort of understand, just sort of talk to the guidance being predicated on things not deteriorating further. I just wondered what your base case is in terms of the assumptions behind that comment. Is it just that Melbourne does 6 weeks of Stage 4 and then goes to Stage 3 and a fairly orderly recovery from there? Or are there allowances sort of for further issues, further sort of second wave issues in other states?

Well I guess at this point in time, we can only go with the information we know. And we don't -- I guess we don't know what we don't know, and that's why there's some level of disclaimer. But I guess, with what we know, most of the other states are in reasonable shape at the moment. And Melbourne has obviously taken the action it has at this stage to get it under control sooner. And we would have seen or heard Daniel Andrews talking about under the Stage 3 restrictions that it's going to take 6 months so -- or in the modeling, he was saying it was going to take 6 months. So this, I guess, the expectation, certainly from the Victorian government is that this 6 weeks will -- should see the amount of infection reduced to a level that they're more comfortable with. And yes, we would assume after that, it's going back to Stage 3 restrictions for a while, at least.

Our next telephone question is from Oliver Stevens from Hartleys.

Just with the distribution that you can support with the capital profits. Can you just remind us what level of capital profits you have available? And to sort of what extent you'd be willing to use those to sort of maintain the distribution at around FY '20 levels?

Oliver, I mean we don't normally disclose the level of capital profits visits. I mean just effectively it's profit from sales that just goes into our unrealized profit number in our balance sheet. But in terms of -- so I mean our -- the view -- the way it works with capital profits in our constitution, I mean we don't pay out capital profits on an annual basis. That's a director's discretion to either retain them for the growth of the business or, in some circumstances, pay them out. So in the financial year just gone, we, I mean, effectively paid out very, very little capital profit to get to the 1%. And at this point in time, with what we know, we may have to use some capital profit for this next current year. But sort of I wouldn't like to say anything about future years because we would need to take a view on that, and the Board needs to take a view on that at the time we need to talk about it.

Our next telephone question is from Edward Day from Moelis Australia.

Michael, just a quick one on your CapEx for FY '21. Is there anything in addition to the Villawood upgrade and the Port Melbourne upgrade that you've got penciled in?

Well we may -- there is another property which we're just sort of finalizing with Bunnings, and I'm just trying to remember, but if that number -- or if that goes ahead, that could be about $6 million. So they're the only most -- well, Villawood is already spent. Port Melbourne is to be spent. There is this other property -- and Croydon, which we have talked about before, is underway.

Okay. And I guess then just in terms of the extra debt you've drawn down, holding of cash, can you sort of just talk to the rationale behind your concerns there?

Well I mean that has been paid back since year-end, and some of it gets used in the distribution. I mean we originally -- I guess we originally decided to hold slightly higher cash in the very early stages of COVID. And that was pre us tapping that extra $50 million MTN issue. And it was really -- I guess there was a point in time very early when it was not clear whether Australia was going to a full shutdown and exactly what was going to occur. So it just seemed prudent to have a bit more cash on hand. So we did carry that for a while. I guess we are in a position now where certainly for the moment, COVID impacts are more localized and the approach being taken to manage them is much clearer. And I guess in terms of funding and availability of funding, markets are open. And so we're -- it was really a case of -- at that stage, there was a lot less that we knew than we know now.

Yes. Sure. And then just finally, on the independent valuations. Is there any feedback you can share with us from the valuers in terms of whether they're sort of changing their assessments or assumptions?

I think for the period, our current valuation, I think they're clearly comfortable with those valuations, and so there's no question about that. I mean going forward, I suppose it will still be a function for this particular asset class in terms of other market evidence and probably, to a lesser extent, income. So I mean at this stage, we're not expecting significant changes in the market certainly in the next period of time. But Andrew, do you want to make any other comment on that?

Look, it appears that there's quite a depth to capital that we'd like to allocate to Bunnings warehouses and the future acquisition of them, and that includes syndicates and other private investors. So it's quite a deep market there. There's been a limited number of transactions happening. And we would just expect moving forward, and the value we are expecting moving forward, that the cap rates on these properties will remain at or about the same level that they're at, which is like sub-5% for metropolitan-based Bunnings warehouses.

[Operator Instructions]

Adrian Atkins from Morningstar. I'm just wondering about the 1.2% of rent that wasn't paid in the June quarter and what that might mean for rising bad debts or rising vacancies going forward.

Well, a lot of it was related to abatements. And so I mean essentially, there -- I mean that was effectively the -- most of the difference was at a period of time. So in answer to your question, I don't think that, that is sort of any indication of a change of direction going forward. I mean we are receiving a significant majority of their rent. And at this point in time, I guess we're not expecting a major change to that. But I guess I'd say that is on the basis of what we currently know.

[Operator Instructions]

[ Jeff Thomas ] from Longbourne Proprietary Limited. The question relates to the Tesla battery at Mandurah. You had mentioned that you had excess power going back into the system. And I wondered what the benefit is to the trust. And also, could this model be rolled out in other locations as well?

Thanks for that question. I might hand over to Andrew to talk about that, [ Jeff ].

Sure. Sure. And I guess there's 2 reasons in relation to the installation of the battery at our Mandurah property in Western Australia. One of them is a pilot project to be able to assess the capability of how we can use the battery and using it on site, but also the potential that we may be able to trade or do something with our retailer in Western Australia, but that's further down the track. In relation to the surplus energy that was produced, we got the largest-size system of solar on that property, and rather than the excess going back into the grid. We will store the surplus in our battery. And when the sun is not shining, we can actually sell it back to the tenants in the property rather than drawing it down from the grid.

Okay. All right. So is this something that you can roll out perhaps in the likes of WA and Queensland successfully, do you think?

Potentially. We'll learn a whole lot more in the next 12 months about the capability of the system. We've got a very good idea about what it can do. But we'd like to just see how it goes for a pilot for 12 months before we consider installing in other jurisdictions.

The next question was related to the Northland. I understand that Bunnings have exercised their option for another 5 years. And I'm just wondering with that particular site how would you see it being used. What's the options for that site?

Andrew, do you want to answer that one as well?

Yes. Sure. Look, that Northland property is about 10, 12 kilometers north of the Melbourne CBD. So it's very well located in quite a dense residential pocket opposite the Northland regional shopping center operated by Vicinity. Look, we've got 3 hectares there. There's 3 street frontages to that property and 3 access points. We see it as a mixed-use redevelopment site in the future. Bunnings is committed there for another 5 years, while it's in the process of redeveloping its other store some 500 meters to a kilometer away from us. That will take some time. We've been in discussions with council about possible uses on the site, and we're quite confident about getting a repurpose development there, which may mean the demolition of those improvements, or it might mean that we redevelop the other portion of the site that's used for car parking at the moment. But look, in summary, there's some really good opportunities for that site.

The next question was related to the relationship with Bunnings and Wesfarmers with the new sites that come up -- or new developments. Do you have any preferential treatment in regard to that? Or you treat it on a very much a commercial basis? How does that operate if they're opening a new site? And do you get the option -- first option? Or what's -- can you give a bit of color about how that operates between the trust and Wesfarmers?

Sure. [ Jeff ], I'll answer that one. I mean essentially all interactions are commercial, so there is no preemptive right or anything, so we need to compete on the same terms as everybody else in the market, and we need to form our own views in terms of where we think the value is in terms of acquiring new properties. So yes, it's simple as that, and it's always been like that for the 21 years of the trust. It's always been done on a commercial basis.

Okay. The final question is probably related to the Board itself. In relationship to the DRP price, we've got an NTA at the moment of $3.06, and we've got a price way above that in terms of the market. And one of the concerns I have is that as investors are participating in the DRP that they're paying way above the NTA price. So current price per share, trading at $3.88. So it was -- is consideration given by the Board to a discount to compensate for that in terms of the -- it's quite a big differential. In other words, people who participate in the DRP are paying a lot above the market value of the properties.

[ Jeff ], just in response to that, I mean the way the DRP works, whether it be for BWP or any others, I mean the DRP price is set based on the market price. And for us, we do it over a 20-day period, 2020 -- sorry, 20 trading days. So it's quite a long period of time in order to set an appropriate market price. But I mean that is the basis of the DRP. It's not set or related to NTA. It's related to market price. And that would be the same if we did a capital raising. It would be set off the market price, not off the NTA.

Yes. I understand that, but you can also offer a discount. It's possible that you could sort of suggest -- you could make a discount to that if you wish to, and I understand the market price has been set over 21 days. But as a Board, they do have an option to offer a discount on that price if they thought that was appropriate.

Yes.

The other question in relation to the DRP, what's the participation?

I mean it's typically below 10%.

I also thought if you offer at a discount to the market set price, that you may get some more participation in that, which would be another way of getting a little bit more capital in. But I just asked the Board if they would consider that.

[ Jeff ], well, thanks for that question. And I will refer that back to the Board.

[Operator Instructions] Our next question is from Ryan Lim from Lincoln Management Fund (sic) [ Lincoln Indicators ].

Just a quick one from me today. Just if you could remind me what's the percentage of your tenants that are qualified by Code of Conduct?

Ryan, it's a very small number, I mean, but essentially, they are gym operators and a couple of other small businesses. So it's -- so it was certainly less than 10. So yes, it's a very small number.

And if we sort of expect the additional lockdown measures across the other states of Australia, expecting the rental payment to sort of fall in line with that, too, right?

Yes. And my answer to you was based on all Code of Conduct, not just in Melbourne, did you -- were you asking specifically about Melbourne?

Of course, specifically about Melbourne. And also, any application throughout Australia.

Yes. Look, for any of our Code of -- or the Code of Conduct arrangements established by the various state governments are in place until, well, certainly at this stage until 30th of September. So I guess it's a known, known, whether it be in Melbourne or everywhere else at the moment. So yes, I guess what happens after then will be dependent on what's happening in relation to COVID.

[Operator Instructions] There are no more further questions at this time. I'd like to hand the call back to the speakers for closing remarks. Please continue.

Thank you. Okay. Thanks, everyone. We'll end the call here. I guess it's an interesting time for us at the moment. And hopefully, by the next time we have one of these briefings, things are improving, particularly in Melbourne, that's what they are now. So anyway, I'll close the call there. But if there are any follow-up questions, please feel free to get in contact. Thank you. Bye.

That concludes our conference for today. Thank you for participating. You may all now disconnect. Goodbye.