‘Active but conservative’: RAM essential services property fund (ASX: REP) delivers continued underlying performance driven by strong leasing outcomes and NOI growth
The RAM Essential Services Property Fund (ASX: REP) has unveiled robust results for the financial year ending 30 June 2023, highlighting the Fund’s inherent strengths in the current economic environment.
RAM’s Executive Director and Head of Real Estate, Matthew Strotton, remarked, “REP has successfully delivered in 2023. Our efforts to secure better leasing results, to prepare for near-term healthcare developments and to position well in an improving capital markets environment has been accomplished.”
Strotton described RAM’s management of REP as ‘active but conservative’: “RAM’s election to secure core asset exposures in healthcare and essential services retail has been underscored with these results. We have had our first financial year in challenging conditions. We will continue to make proactive and prudent capital management decisions to deliver reliable income for investors, particularly as we embark on capital recycling initiatives including the sale of some of our portfolio assets,” Strotton said.
Pursuant to REP’s conservative policy, 81% of the portfolio assets were externally valued in the year, with the results indicating that its Weighted Average Capitalisation Rate is relatively conservative.
“REP remains encouragingly well-positioned. The assets were well-bought and are still defensive in this environment. Our quality tenants provide non-discretionary goods and services and remain resilient against an uncertain economic backdrop. Embedded growth drivers within the portfolio are having an impact and will help to offset any rising interest costs in FY24, allowing the fund to continue generating stable income for unitholders,” Strotton concluded.
Highlights of REP’s FY23 results includes:
- Funds from operations of $30.6 million or 5.9 cents per security
- Distributions per unit of 5.7 cents at a payout ratio of 97%, in line with guidance
- Pro-forma gearing of 35%[1], comfortably in mid-target range
- Like-for-like NOI growth of 4.5%[2], driven by strong underlying rental growth
- Positive leasing spreads of 5% averaged over the year due to inflation exposed rental escalations, helping to offset rising interest costs
- The maintenance of a strong suite of tenants (healthcare providers and retailers of essential goods) whose businesses are proving resilient in the current economy
- Around 90% of lease renewals for the next financial year being already in advanced stages of negotiation
[1] As at June 2023 adjusted for the disposal of Westlake which is unconditional and expected to settle in October 2023
[2] Comparable property Net Operating Income