RAM Essential Services Property Fund H1 Earnings Call Highlights

by · The Markets Daily

RAM Essential Services Property Fund (ASX:REP) outlined steady operating conditions for the first half of FY26, while highlighting progress on its plan to reposition the portfolio toward healthcare assets. Management said occupancy remains in the “high 90s,” leasing spreads were positive, and distributions were maintained, while a proposed divestment of five retail assets is expected to accelerate the shift toward an 80% healthcare weighting within 24 months.

Portfolio performance and leasing activity

Group CEO Scott Kelly said the portfolio continues to perform as expected for a defensive strategy, supported by high occupancy and consistent income. Leasing spreads averaged 6.1% across 20 deals completed in the period, including new deals with Coles, Big W, and Vicinity. The weighted average rent review was 3.6%, and around 60% of leases were on a net basis, which management said reduces exposure to inflation in outgoings on those contracts.

Head of Real Estate Matthew Strotton reported that, as at 31 December, total property value increased to AUD 675.5 million across 26 assets, with income diversified across 245 tenants. He said 98% of tenants are in the targeted “essential services” sectors. Occupancy was 97% and portfolio WALE was seven years, with the healthcare sleeve at 10 years. Strotton said embedded income growth remains a key feature, with 89% of rental income subject to annual escalations at a blended rate of 3.63%, with the remainder typically tied to formula or turnover-based reviews.

Net operating income (NOI) growth was 2.1% for the half, which Strotton said was lower than prior periods due to increases in expenses tied to unforeseen repairs and improvements and some unforeseen tenant vacancy. However, he said structured rent reviews and positive leasing spreads are expected to lift NOI “back to trend or greater” in coming quarters.

Valuations and cap rates

Management said portfolio values remained steady, with the weighted average cap rate stable at 6.09% (described as “a touch over 6%” across the portfolio). Strotton pointed to improving pricing clarity in retail in the latter half of 2025 and early signs of activity in healthcare heading into 2026. He added that 75% of the portfolio has been externally valued within the last 12 months, which the team said supports valuation transparency.

Funds from operations and distributions

Strotton said normalized funds from operations (FFO) declined to AUD 9.1 million from AUD 10.9 million, noting the two periods were not “like for like” due to changes in GAAP and heightened transaction activity. He said normalized FFO was used because standard FFO includes one-off transaction costs, which management does not view as representative at this point.

The half was also impacted by unforeseen vacancy and additional center expenses, including repairs and minor compliance obligations. Strotton said the payout ratio is typically higher in the first half than the second because some larger lease reviews occur in the second half. He said full-year projections remain on target and that the distribution to date was AUD 0.025 per security. Kelly also cited a consistent distribution profile, referencing DPU of AUD 0.05 and a yield of over 9% on the current share price.

Retail divestment and the shift to healthcare

Management reiterated its intention to move the portfolio to 80% healthcare within 24 months. Kelly said the fund has agreed a term sheet for the sale of five retail assets—Coomera Square, Springfield Fair, Coles Rutherford, Keppel Bay Plaza, and Mowbray Marketplace. Strotton said the term sheet remains subject to approvals and completion of diligence, with an update to be provided when appropriate.

Kelly said the proposed divestments would focus attention on allocating proceeds across three areas:

  • Healthcare acquisitions, with management citing opportunities to acquire “attractively priced accretive assets”
  • Gearing management in a “higher-for-longer” rate environment
  • Potential buyback activity, as management noted the fund is trading at a material discount and said “the maths of the buyback cannot be ignored”

Strotton said the team intends to maintain leverage in the 30%–40% range, though it may choose to reduce it further to preserve flexibility for acquisitions and value-add initiatives.

Healthcare market commentary and value-add pipeline

Kelly introduced George Websdale, who joined during the period as Head of Funds Management and has more than 30 years of real estate experience, including in healthcare. Websdale said healthcare fundamentals remain resilient, but investors have faced headwinds, including widely publicized disruption in the private hospital sector. He described a “two-tiered market,” where smaller, non-specialized assets under AUD 30 million continue to attract syndicators and private investors, while larger, longer-leased specialized assets remain scarce with a shallow buyer pool.

Websdale said the fund is starting to see opportunities emerge to acquire larger, higher-quality healthcare assets above AUD 30 million as vendors look to recycle capital. He said the operator environment is stabilizing and pointed to the Healthscope transaction as progressing well, which he said is supporting the reemergence of a growth mindset among operator partners.

On value-add opportunities, Strotton highlighted that higher-growth retail assets at Punchbowl and Ballina are being retained. At Punchbowl, he said discussions with Woolworths have commenced regarding refurbishment and service expansion. At Ballina, he cited leasing progress with three tenants, including Big W and Super IGA, with Super IGA also having a market rent review. He also outlined a pipeline of healthcare-related initiatives at various stages of feasibility, design, and planning, including refurbishment and service expansion projects at Dubbo and Miami Private, and potential development and capacity expansion at Mayo Private and Northwest Private Hospital.

In Q&A, management said the fund was 83.7% hedged pre-transaction and that the all-in cost of debt was “just under 5%.” Strotton said that if the fund did nothing and a material hedge unwound in the third quarter, hedging could fall to below 60% for 2027 (subject to confirmation). On payout ratio timing, he said management expects it to normalize back to 100% by June.

About RAM Essential Services Property Fund (ASX:REP)

RAM Essential Services Property Fund is an REIT. It invests in high quality Australian medical and essential retail real estate assets, leased to essential services tenants. RAM Essential Services Property Fund is based in Australia.

Further Reading