Thank you very much. Good morning, everybody. So as you just heard, my name's Scott Kelly. I'm the Group CEO for Real Asset Management. We're very pleased to be able to present a solid set of half-year results for the RAM Essential Services Property Fund this morning. The plan is to take about 20 minutes or so of your time to run through the presentation and leave time for questions thereafter. In terms of the agenda, I'll take you through the highlights. Matthew Strotton, Head of Real Estate at RAM, will talk you through the broad market trends, then hand over to Peter Granato, the Lead Portfolio Manager on the fund, to run you through the portfolio performance and the key numbers, and Matt will sum up, talking about future strategy, and then we'll hand over to the Q&A.
In terms of overarching comments, I would just lead in by saying that the portfolio remains healthy with solid cash flows from essential services. The balance sheet has been well managed, and we continue to execute our capital recycling program as we shift towards a higher healthcare weighting and demonstrate our ability to access liquidity throughout the cycle. That ability is standing us in good stead as we start to acquire high-quality assets on attractive yields, and we have an example of one such acquisition to talk you through today. Turning to page four, let me skip you through the main highlights. Leasing remains strong with 17 deals done in the period with spreads of 3.9%. In doing so, we've extended the WALE back up to seven years.
Occupancy consistently remains in the very high 90s, and we've enhanced the mix of tenants with the introduction of Ramsay Health Care into the portfolio, which remains highly diversified. In terms of cap rates, we've consistently indicated we thought we would land around the 6% mark by the end of the cycle, and that's where we are with a seven basis points move over the period. 83% of the assets have been externally valued over the last 12 months. Our capital recycling continues and is on track. Since we started the program, we've sold AUD 119 million of assets. The average ticket size of AUD 11 million tells you that we've been selling assets into the relatively strong private market and look to deploy that capital into larger assets on more attractive yields.
We have executed one such transaction in this period with the acquisition of the Cairns Surgical Centre, and we have approximately AUD 100 million of further acquisitions under exclusivity. As we gradually shift the portfolio, we do so while managing gearing, and post-transactions that remain around the 35% mark. With that, I'll hand over to Matt.
Thank you, SK, and good morning, folks. Just moving to the next slide, there, slide six. As you will all recall from our announcement last year, we are shifting the portfolio construction for REP to crystallize a move from 50/50 healthcare and retail to a pure healthcare offering. The objectives in pursuing this was to provide investors with a clearer sector allocation decision, with the results to be delivering longer-term attractive returns with lower volatility in a market with an ongoing scarcity for attractive alternatives in the sector. We remain highly convicted on this program, and we remain highly convicted in healthcare. This is due to the strength in the investment case for healthcare, which is supported, continues to be supported by underlying fundamentals. We'll deliver upon this reweighting objective with recent and impending activity placing us in a strong position leading into this year.
With respect to retail, an asset class that RAM still retains strong belief in, we are in consultation with the board for the sale of a further two assets, and importantly, some wider activity on the retail on that retail side is in advanced planning stages. A theme that will emerge further today is how encouraged we are with the range of deal flow pipeline that will complement the existing portfolio. Pipeline that is available now, but perhaps not for too much longer. Our stance on value add, which Peter will describe, is a move from defense to offense, and it's shaping our pursuit efforts. How this affects behavior cannot be underestimated. Just moving on to slide seven. So let's talk a little bit more about pipeline. RAM moved early in this cycle, a move to recycle asset amidst what some would describe as a somewhat confronting set of conditions.
As we did so, our efforts to secure new stock were intensified. This enabled us the opportunity to review a wider range of subsector uses and importantly allowed us to observe the increasing impact the tail end of this cycle has had on vendor pressures to release stock. This was proactivity, and it's given us an advantage. We now underwrite a wider cross-section of uses, a wider cross-section of risk parameters. Yes, we feel empowered to do this through a more effective level of engagement with our operating partners. This informs us, educates us, and guides us, and in return has allowed us to demonstrate our capability to build on that trust bank and to allow us even to think outside the square. This slide indicates our targeted subsectors. We highlighted these last in last presentation: private hospital anchored schemes, mental health hospitals, metro primary, surgical, and specialized services.
Through, importantly, market intermediaries, but more and more directly with our private operating partners, both current and prospective, with nonprofit operators and state governments. Importantly, the source of opportunities is not reactive. We are not waiting for that next deal to emerge in an on-market setting. Furthermore, as pressures have mounted on others in the search of liquidity, so does our opportunity set. We've been very pleased that REP has had no land drag. We have not had to carry the burden of activity. Our value add is invariably organic. Peter will talk about this more shortly, and we intend to add to this through a wider variety of risk schemes, risk schemes where we can trigger value add as we choose. Just moving on to the next slide, which is slide eight. So let's get again a very brief sense of relative returns in the state of capital markets.
You will recognize the end of the prior cycle, which, as we describe it here at RAM, showed symptoms of a super cycle for healthcare, a cycle where the asset class built significant acceptance as an alternative and institutional asset class. Yes, risk premiums tightened, and like all sectors, the sector was subject to outward cap rate movements. But the end of this cycle is bringing opportunity. Properly underwritten and in close consultation with our operators and careful bottom-up analysis, there are particularly attractive opportunities. While not a set criteria, we are targeting assets in the range of 7% plus in terms of initial yield. Assets can be on either side of that level, but that has been our target range. Importantly, the top-down investment case for each asset is also critical.
Core assets through to value add, and our recent acquisition, as SK pointed out, is a good example to walk through. So let's move to slide nine. So we recently announced the acquisition of the Cairns Surgical Center. You know, why? Why was this a target for us? This was an asset acquired with a relatively short WALE of under five years, but importantly is anchored by Ramsay Health Care. Our view on the asset was supported by the operating dynamic for the Cairns market, and we can elaborate that on the coming quarters, but the important part for us was being in a position to cultivate our very strong pre-existing relationship with Ramsay. The asset itself will continue to benefit from the sub-market's operating fundamentals and the exposure to quite a dynamic local healthcare workforce.
We feel strong about both, importantly, the leasing prospects, but also the medium-term value add proposition for this sub-location. We cannot divulge too much just now, but we look forward to elaborating more on that in the near future. I'll now hand it over to Pete to walk through the portfolio summary.
Thank you, Matt, and good morning all. I'm delighted today to take you through the key performance elements of the portfolio on slide 11. Firstly, the key portfolio metrics. The fund continues to perform over the first half of FY 2025, generating secure and stable returns from the AUD 650 million property portfolio. Occupancy levels remain strong and have been maintained at a healthy 97%, with income underpinned by major retail and healthcare tenants. Pleasingly, the portfolio WALE now sits at approximately seven years, which is an outstanding result and attributable to the continued leasing efforts and portfolio composition. The capital recycling strategy has also supported the WALE improvement as shorter WALE assets have been divested. The FY 2025 and 2026 lease expiry is substantially negotiated, with a combined 70% of income under advanced negotiations and improving, once again driven by the strong renewal and retention rates across the portfolio.
FY29 and beyond income expiry is also solid at once again around 70% and expected to increase with near-term activity. As you can see on the income exposure graph on the right, 88% of income is exposed to annual escalators that continue to drive annual income growth. In terms of reviews, we're pleased to say that the fixed weighted average rate of rent review is around 3.5%, and the blended weighted average rent review equates to a healthy 3.24%, which remain well above current inflation levels. We continue to work closely with our tenants and find ways to support their requirements prudently. Leasing efforts and asset management initiatives remain a key focus, and we will continue to drive value across the portfolio. Final comments on this slide relate to valuations, and as SK said, as foreshadowed, we anticipate that valuations would stabilize toward the 6% level.
The portfolio now is weighted is valued at a weighted average cap rate of 6.04%, with further detail in later slides. Moving on to slide 12. This is a fantastic slide and a fantastic illustration of the achievements to date and reflects the enhanced and diversified tenant covenant across the portfolio, which continues to improve and further diversifies the fund to additional healthcare subsectors. We welcome the introduction of Ramsay into the REP family with the acquisition of Cairns Surgical Hospital. RAM has previously been working with Ramsay on their development strategies, and we look forward to expanding and maturing this key relationship. Other key tenants include Healthe Care, St John of God, Healius, and other retail tenants such as obviously Willys and Coles, which we'll obviously continue to support and work with.
Following successful due diligence, the acquisition pipeline will also see further top-tier tenants introduced to the portfolio, which we're excited about. As you can see, this growing list is impressive and includes many major ASX-listed groups, which we are committed to partner with. Moving on to slide 13, portfolio resilience. This slide is quite self-explanatory, and I'll focus on the key highlights. We have now achieved comparable growth on NOI of 3.1% on a like-for-like basis. Once again, occupancy levels have been maintained for some time, which remains positive. Certainly, I'd like to emphasize the WALE at seven years, which is a key feature which we are proud of, and we continue to see that being a key feature of the portfolio.
Leasing spreads for the half have come in at approximately 4% and continue to outpace inflation, with 44% of leases with fixed annual reviews, which supports income growth as inflation cools. Net leases and fixed annual reviews remain the targeted position. Approximately 60% of our leases are on a net basis, which provides the natural hedge against increases in operational expenditure. Supermarket growth has softened in recent times, and the 2.4% MAT growth remains well in line with our peers. While not a concern, supply of new stores have been subdued, and we are currently working with our major tenants on a range of refurbishment programs as they seek to deploy capital to stores and improve MAT. Moving on to slide 14, which focuses on valuations, which remains obviously a key driver for gearing.
Once again, as foreshadowed, we predicted that valuations would stabilize towards 6%, as we enter the late stages of the cycle, and this is reflected in the weighted average cap rate of 6.04% that is softened by only 59 basis points over the past two and a half years. We continue to externally value a high portion of the portfolio, with 83% of the portfolio valued externally within the last 12 months. By way of peer comparison, we remain in line with our listed retail peers, at 6.05% for retail assets and marginally softer than our listed healthcare peers for the medical portfolio, which sits at 6.02%. As we know, the medical portfolio holds varying exposures to healthcare subsectors, including medical centers and the like of private major private healthcare, private hospital schemes. In summary, we believe that we're in the late stages of the cycle and valuations have stabilized.
We continue to remain focused on growth strategies that support valuations and growth in the near term and beyond. Moving on to financial performance, slide number 16. The fund has delivered a healthy distribution of AUD 0.025 per unit to our investors for the first half. Funds from operations have arrived at a pleasing AUD 10.9 million, which remains as expected and aligns with the capital recycling strategy. FFO has been maintained on the smaller gap. As you can appreciate, this activity has impacted the year-on-year comparisons, which are highlighted within that table. Reducing debt levels from the sale proceeds has also decreased finance costs with further divestment activity in the near term. Divestment and acquisition activity will continue to progress, and this activity will unlock value and in turn position the portfolio for sustained growth beyond FY25.
While maturities buyback nears completion toward the end of Q3, the fund is looking ahead and looking to deploy capital toward accretive acquisitions and value add opportunities. Next on to slide 17, balance sheet and capital management. A strengthened and flexible balance sheet will provide the fund with the levers to facilitate growth. Gearing remains at similar levels at approximately 35% and will be actively managed as we progress through the capital recycling program. As you can see also, NTA is currently sitting at AUD 0.81 per unit. Other key metrics include borrowings, which sit at a 31 December drawdown balance of AUD 252 million out of the AUD 340 million syndicated facility limit. The ICR covenant of one and a half times is a key attribute of the financing, providing flexibility to the fund. At present, the ICR stands at a comfortable level of 2.3.
Over recent weeks, we have witnessed interest rate cuts, the first for many years, and while sentiment is improving rapidly, the fund remains in the money with the current 3.5% average hedging in place, which will continue toward the end of FY 2023. These hedges will naturally scale down over this period. We have been active managers in this space, and as we appreciate, the interest rate environment is changing, and this means that the hedging will be dynamically managed with a lower-cost approach to managing the hedge position. As mentioned earlier, the share buyback will conclude toward the end of March, on 31st of March, after acquiring 18 million securities since the commencement of the program. Turning to slide 18, this slide is quite self-explanatory, and I'll once again call out the highlights.
Near-term capital management activities will center around dynamically managing the 1.6-year hedging profile in a prudent manner, and we have commenced discussions with financiers in relation to the June 2026 debt expiry, with more than sufficient time to work through the options. The fund remains well-positioned to support acquisition, disposition, and value add activity with a current headroom of AUD 115 million, circa AUD 115 million. As you know, we have been very busy with a lot of cap trans activity, and I would like to hand you over to Matt, who will take us through the capital recycling activity. Thanks, Matt.
Thank you, Pete. Slide 20, folks, capital recycling program. As noted earlier, our efforts to move on the recycling plan, importantly to move early, have placed us in a strong position. We took advantage of our liquidity edge, particularly those in the smaller asset sizes, and moved early on those that later in the cycle we may not have had the same level of buyer tension. Others, we believe, are experiencing that now. As valuations continue to move further out, this enabled us to manage leverage effectively, to continue the share buyback, and essentially allowed us to release assets that had run a strategic course. In parallel, we amplified our efforts to review an increasing number of risk assets. Further, we elected early in the cycle to move from offense to defense in our development outlook. This will be shifting.
This cycle has presented the sector with some challenges, yes, but a proactive manager, our proactivity, has given us a firmer foundation to work from. Just moving on briefly to slide 21. This gives you a snapshot of the disposals. You will all recall these over the last 15 months or so. When we embarked upon this program, we announced our plan to sell between AUD 100 million and AUD 150 million by the end of calendar year 2024. This has been delivered through AUD 119 million of recycling at a relatively tight yield of 5.7%. And if you will recall, our targeted profile, which is not necessarily set criteria, is to target assets at 7% and above, which is accretive, but importantly, is targeted from a wider opportunity set that allows us to draw out further value over time.
We indeed intend to have, I would say, a little more subdued activity on capital recycling, which we are continuing to consult with the board on. Just on slide 22. So once again, in finalizing, how is our pipeline shaping up? Right now, we have AUD 124 million worth of assets currently tied down to either exclusivity or further advanced and under contract. These assets will provide further enhancement to WALE, will contribute to lower volatility in earnings, and importantly, will further diversify and enhance the fund's tenant covenant. The key for us here, as highlighted, is the type of opportunity that's emerging.
We will continue to review the full spectrum of assets, assets that bring opportunity to our asset management and development teams, and importantly, puts us in a position to do so as vendors continue to recognize their needs to generate liquidity for, and particularly those who did not move early enough in the cycle. So with that, I'll hand it back to SK to wrap up. Oh, over to me. Oh, forgive me. That's back to Pete. Sorry, folks.
That's all right. Thanks, Matt, and moving on to slide 24, value add. Look, certainly just picking up on Matt's point, we are absolutely thrilled at the prospect of moving from defense to offense, which is a welcome change. We are pleased to share today the news that North West Private Hospital Cath Lab development is in the final stages and will provide important healthcare services to the North West Region of Tasmania from the end of next month. The Cath Lab represents stage one of a broader master plan and represents a notable example of the high level of tenant landlord engagement and alignment to both support and deliver the project on time and on budget. This Cath Lab will improve the profitability of this hospital and will deliver a new healthcare service to the region.
We will continue to find ways to provide real estate solutions for tenants as they consider new and profitable services in the healthcare sector. This circa AUD 7 million project is supported by a 30-year lease reset, increasing the fund WALE. This project was pre-committed by the tenant and rentalized on a 7% yield-on-cost model during construction, carrying through to completion. It goes without saying, this project provides a blueprint to replicate for further development opportunities across our private hospital schemes. Moving on to slide 25. We are reigniting efforts to pursue small, medium, and large value add projects and intend to execute these when the tenant-led timing is right. Value add is also a key consideration, as Matt stated, when assessing our acquisitions through the due diligence process.
We have identified a range of value add projects across our existing portfolio, which we've placed into three categories, and I'll step you through these briefly. The first category of activity is very much focused on tenant-led expansions. These are tenant-led expansion strategies that target high yield on cost outcomes based on a fixed or a floating margin mechanism, such as a BBSY plus a margin, for example. So what, what does this mean? We work with our tenants to deliver real estate outcomes to support their evolving business requirements over their lease term and beyond. As they evolve, we evolve. As they succeed, we succeed. Current schemes include the expansion and reinvestment into assets, including North west Private and Dubbo Private Hospitals.
We are focused on providing the pathway for the tenants to increase operational profits, once again, by providing the real estate solutions that are flexible and adaptable and meet their evolving needs. We are providing the pathway for tenants. Sorry, excuse me. We know our tenants are looking for ways to deliver new and improved healthcare services, and the operators are actively working through initiatives to retain and engage their workforces and improve productivity, which we can contribute to. These projects and others in this category in aggregate amount to around AUD 50 million. The second category focuses on tenant repositioning, which can be done in a number of ways. In simple terms, it involves reshaping a tenancy over time and further investing in our assets to achieve better leasing outcomes. We anticipate there to be around AUD 20 million plus worth of projects in this sector alone.
The third category focuses on typical brownfield development opportunities. For example, it could be simply identifying an asset with underutilised land or obtaining a DA for additional area and creating the opportunity to develop further. In most cases, leasing risk is prudently mitigated with the tenant underpinning a significant portion of the developable area prior to commencement. As you can see, we've identified around AUD 55 million plus worth of potential opportunities in this category. Moving on to slide 26, which highlights the key projects. As you can see, they mainly relate to our private hospital schemes, most with really low site coverage ratios, which facilitates the growth in particular. These projects will be tenant-led and staged with CapEx in the range of 10 to 25 mil for these assets.
But once again, we'll be looking at our small, medium, and large schemes in aggregate, in parallel, through this process. The benefits of these projects are clear. Projects are typically delivered and led by the tenant. They are on a yield on cost. There is no land drag. They are stageable, and they typically extend the WALE for the entire asset upon completion, which is a big positive. I would now like to pass on to Scott for the outlook and closing summary.
Thanks very much, Peter. So I'll briefly sum up on slide 28 and 29 before handing over to Q&A. The growth is coming through with decent NOI improvement and consistently strong leasing spreads, indicative of strong tenant demand. Natural inflation protection also comes through in the weighted average rent review, which is in excess of CPI. The sectors to which we're exposed are essential. They are not a nice-to-have. 97% of the income comes from essential service tenants. That tenant's mix, that tenant mix is diversified, high quality, and has been enhanced during the period. Again, we've been busy. Our ability to access liquidity and evolve the portfolio through the cycle is a real strength. That's allowed us to maintain a comfortable level of gearing, execute a buyback, and shift the portfolio in the direction of accretive opportunities.
On slide 29 and looking forward, our guidance sits bang in line with analyst consensus, which equates to a yield of 8%, with almost all of that income being tax-deferred. We have finally had some good news from the RBA, and consensus would suggest we are looking at a period where rates can creep gradually lower. Other pressures have also eased, which means that being in a position to redeploy capital into high-quality acquisitions and re-engage well-considered value-add initiatives is an enviable one. With that, I'll hand over to Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Tom Bodor with UBS.
Good morning all. I'd just be interested in the interest rate covenant reduction to one and a half. I'd just be keen to understand, is that a temporary reduction or a permanent change to your facility?
That was actually something negotiated as part of the syndicated facility from some time ago. And certainly, if you recall, we included this information in previous presentations as well. So it was really just part of a negotiation. Certainly, no background driver to it.
Sure, but it's a permanent reduction, just to be clear. It's not, doesn't mean it's not permanent.
Yeah, permanent reduction. Yes, yes. It wasn't actually; it was just part of the facility. Full stop. So we didn't go back and seek a reduction.
Okay, great. Thanks. And then just, I'd be interested in your skew to the second half. I mean, on the basis of what you did last year, I think it was 41% first half. So very, very significant skew. And I think that was around rent reviews coming through in the second half, as well as, you know, there was a bit of an elevated cost sort of consideration there too. And if you look at your guidance, it implies a similar sort of skew. Just be sort of interested in your comments there around that. Are there any downtime pe sort of aspects impacting the first half versus the second half? Because it does appear to be very material.
Tom, that was a bit of a standout year last year. It's sort of approaching 45-55, the skew this year, which is, as we've highlighted previously, a significant number of reviews are occurring sort of as we head into the second half. So, nothing else to call out there that would be unique for this year. Yeah.
Just to re-emphasize that point, Tom, so as we went through this process last year, just, typically will be 45%-55%. And that's kind of where we are now. Last year was a little bit of an outlier, but we guided to 45%-55% in general terms, and that's roughly where we are. So there's no significant skew in the numbers this time around. Great. Thanks. And then just one final, well, probably two more, actually. Just keen to get your thoughts around sort of you're doing the buyback. You're still above your target gearing range. Obviously, you've got asset sales coming through, but you're also trying to redeploy into more healthcare and do developments.
Just be interested in where you see that gearing sitting and, you know, how you think about the buyback in the context of, you know, preserving capacity to do the things you're trying to do on the other side. Yeah. So, as we've proved over the last sort of 15 months or so, our ability to access liquidity allows us to do all of those things in aggregate. There'll be priorities as we tried to articulate in the presentation. So we, as we move through the buyback, the divestments will allow us to manage the gearing level, which we have done. It's always been around about the 35 since we started the recycling program. We have done the buyback.
We've also announced that we'll be finishing that at the end of March, because we want to dedicate capital to what we think is more attractive, acquisitions. The other and value add for that matter, the other thing about the buyback, is that if you look at the performance of the REITs, it's actually the best performing REIT of its size since we listed. If you look at sub-AUD 500 million, that's true, and also top quartile in the sub-AUD 1 billion-dollar market cap. So what that means is that we have to be very conscious of the size of the REIT because that's been a determinant of performance. So with regard to the cessation of the buyback, what we don't wanna do is make that situation work. So we're always trying to balance up the math of the buyback versus the longer-term impact of making the REIT smaller.
We think we've got that balance right, and we think we'll be ceasing. That's why we've announced we're ceasing the buyback at the end of March. Great. Thanks. And then just a final one. There's been obviously plenty of press around tenant issues in the healthcare space, different sort of tenants to what you're focused on. But would be interested in getting a view around, you know, any particular issues at the tenant level across your portfolio now or kind of emerging?
Like last one, the same answer from our side, no. The answer is no. We have quite a direct view on how that has been portrayed in the media. And from our perspective, the significant majority of issues related to the private healthcare, health, call it, financial health, are isolated. From our perspective, our approach to this has not changed, despite the announcements, despite any sort of potential speculation. It's engagement from a bottom-up basis with our healthcare tenants, not only as we might consider development value add, but in the day-to-day operations is to ensure that they have a sustainable operation, and we work as a proper partner, landlord or development partner. And because of that, we have quite a fine-tuned set of views that are shared with our operators. No, the answer is no.
This is something that we feel strongly about has been significantly overdone. If any further issues emerge, yeah, sure, there might be some further engagement between the public system, the private system, or state and federal governments, and private insurance. That is something that is an ongoing factor as in that exists in the healthcare sector. That has not impacted anything in our portfolio, and quite frankly, we don't see it emerging in scale, anywhere near to the extent it's been raised.
Great. Thanks for that.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Charles Kingston with K Capital. Yes, thank you. A few questions, please. Just following up on that previous question around the state of the sector and your tenants. I mean, clearly the market's a bit worried given, I suppose, you're trading pretty similarly to HCW. And, but are there any actual statistics that you could provide rent coverage to give the market some comfort around how sustainable your rents are? And I know you've got some, I think you've got some, mental health facilities, etc., and it seems like that's certainly part of the market that is struggling more so.
We'd just appreciate if you could provide some actual figures to provide some comfort for the market, so that we do think that your rents are sustainable and your tenants are able to keep paying those increased rentals, please.
Yeah, sure. So, you know, firstly, we're not experiencing any issues with areas across the portfolio with our major healthcare tenants, which is obviously key. We've actually been working with them very closely to understand their operations, actually. And they're actually viewing this whole sector at the moment as an opportunity to grow sensibly. So, we've been working, going on this journey with them. Interestingly enough, you know, just looking at, you know, today's results, Medibank Private came out today. Their results are up, you know, on their health insurance profits, you know, which is obviously a great indicator that we've got a, you know, a reallocation profits from the insurers to the operators still yet to occur.
Fundamentally, we know that the healthcare operators are working very closely with these insurers to renegotiate terms. We know they're working with all levels of government to improve conditions. We know they're controlling costs. We know they're focused on retaining staff, improving productivity, and implementing business improvement initiatives. So, they're doing all the right things. So we're getting paid. We don't actually foresee it to be an issue. And certainly, if you look at the Northwest example, you know, we've gone and invested more capital in that location with a tenant.
So, you know, in that case, we've gone back through and very clearly understood the key drivers within that business, you know, how the revenue stream and cost structures are underpinned by the neighboring private hospital, public hospital next door, and gaining comfort. So, you know, certainly at this stage, we don't foresee any issues with our current tenancy base. I guess, and just, I guess this, two points I would make is, you've got to be sort of really specific about the type of healthcare you're exposed to. We emphasize our subsectors. One sector we do actually like is mental health. And just to put some numbers around that, if you read the AFI headlines and you just sit there, you probably think that the rebates are going down from the insurance companies to the operators.
In mental health, that's gone the opposite direction. So they used to get about AUD 700 per night. Now gone to over AUD 1,000 per night. That's one of the reasons we like that. There's underlying demand. We're all spending more money on healthcare, in mental healthcare than we used to, personal level, state level, federal level, and the rebates are going up. So profitability is going up in the mental healthcare space, which is one of the reasons we actually like it. The other thing I would sort of mention is if you look at profitability across the sectors to which you can be exposed in the listed environment, healthcare actually stacks up. So we're happy to follow up with that.
But if, you know, it's sort of almost ironic in our view that we get questions about healthcare profitability when you look at 85% of the listed environment is office and what we would describe as discretionary retail. So I think in the listed environment as well as in the broader environment, healthcare also stacks up. So hopefully that helps. But can you give a rent to EBITDA coverage just so we have something tangible? I mean, the rent to EBITDA coverage is, there's no obligation for our tenants to disclose that. And invariably, where we discover that is through, I would say, general interactions.
The one thing that is not covered, and again, we're a bit disappointed this hasn't been the case, is, yeah, that while there might have been rent to EBITDA isolated case around the country, it's important to also allow operators to stabilise coming out of COVID, the greatest stress test this healthcare system has ever faced. And that hasn't been properly attended to. So our discussions do focus on that and the individual circumstances of our assets and the profitability of those operations. So we see EBITDA in certain and isolated circumstances where that might be breaching above 50% or 60%. But what we're tracking is importantly how that EBITDA to rent is continuing to stabilise coming out of COVID. And I would say on balance, that's what we're starting to see.
You know, operations are reaching a new point of equilibrium, and we see on balance, EBITDA to rent sort of sitting in that 40% range. Okay. Thank you. And then just, you don't talk to AFFO, noting there's clearly a lot of maintenance CapEx with retail, leasing incentives, etc. And I suppose just your yields, you know, superficially it looks very attractive above 8%, and your cost of debt. Seems like there's less of a headwind compared to some other REITs. So just trying to get your, well, firstly, why don't you provide AFFO? Because the market is saying that, you know, unless I'm missing something, you, you've got one of the highest yields in the sector. Maybe it's a function of being in that hospital sector.
And again, people aren't sure whether those rents are sustainable, but you've got a very high yield, which is superficially attractive. But just appreciate it if you could provide some color on AFFO too, so we can understand how sustainable that distribution is, please. There's, I would say, absolutely no reason why we don't. And in fact, we can go and find that and provide that to you. I certainly wouldn't say there's anything sinister to not producing that. I don't believe it's uniform from our peers to do the same. No, I'd actually call it out. I don't see the 8% yield as superficial. It's real. It's demonstrated and it's consistent. I think it has fallen since IPO, but okay. So do you have that offhand? What's the rule of thumb? 'Cause you're paying out near 100% of FFOs.
So what would be the maintenance CapEx and incentives across the portfolio? What's FFO? We'll have to go. We'll have to get our finance team to go and grab that for you. Okay. That's fine, and then on the buyback, I appreciate, yes, scale of the REIT may help, but personally, I think that the biggest issue is the fact that FFO or distributions have been going down and concerns around the sector, and they may be unfounded, and therein lies the opportunity, but I do struggle to understand why you would look to recycle the portfolio when there's a lot of upfront fees, fees paid to the manager, etc., whereas a buyback, the current price, if you're saying that distribution is bulletproof, you know, you're getting over an 8% yield, and that's on equity, obviously, not headline gross cap rate.
But, you know, buying the stock when it's yielding over 8% relative to recycling into new opportunities, which have a lot of upfront fees, there's a lot of time to get to that sort of stabilized yield, we're trading a long way below the IPO price. I would've thought doing a buyback is absolutely the best use of capital and would, if you're, if you're not gonna buy back the stock, I suppose, why, why would anyone else want to? That, that would be my superficial thoughts. I, I would've thought a buyback's highly preferable. So any comments on that, please? Yeah. I mean, just, just to reiterate the, the previous comments really is that, you know, we have been executing a buyback when the math of the buyback got extreme. To your point, that's when we initiate the buyback. We've been doing it for many months.
For everybody who tells us we should be doing a buyback, there's a similar person who tells us we shouldn't do a buyback. The contra-argument is that the biggest impediment to the growth, to the share price very clearly has been the size of the REIT. We want more liquidity in the REIT. It needs to be bigger. Therefore, in the longer term, we're making that problem difficult. It's, we're making that problem more exaggerated. So it's always a balancing act. We have been buying back our shares. We consistently do the right thing with clients' money. But it gets to the point where the math starts to swing back in the other direction when we see more attractive uses of capital. Would it be 8, 8.5%? No, it wouldn't.
But it would be more attractive than it has been over the last 18 months or so. Therefore, we have more attractive use of capital within the portfolio, and we don't want make our REIT any smaller because that's the biggest long-term challenge that we have. So it's always a balance, and that's why we have been buying back the shares, but we will cease doing so at the end of March. Yeah. Thank you. Two more quick ones. Just how do you grow the funds? So, given the chronic discount, I presume you can't raise equity down here. So how do you grow it?
Second to that, I think you've got an unlisted healthcare or the manager has an unlisted healthcare fund along with a, is there a JV with, I think it's QIC or GIC, I forget, in the hospital sector as well. But where does REP, the listed vehicle, sit in terms of priorities? Does that have a totally different strategy? We're all in healthcare, but yeah, how do you actually grow the vehicle? Would you raise equity? And how does REP fit in the broader manager's portfolio when it comes to healthcare? Does it get priority over certain assets, please? Yeah. Two very simple questions is that obviously we've got no plans to raise equity the discount. As we hopefully close the discount, that might change over time, but that's obviously something that we're gonna have to work towards.
In terms of the other strategy, when we've talked about it in previous presentations, that's a higher risk, development value-add strategy. It's where we're targeting low-income, high capital growth, and returns in excess of 16%-18%. So that's a higher risk strategy in the same sector. The benefits. So there's no overlap in terms of underlying assets because these assets are typically, well, they're development, so they don't generate any income. They're not suitable for the REIT. But there are a number of benefits to direct holders, which we've highlighted previously by having that synergistic higher risk system strategy. Number one is we get a broader team. So we got a broader team, which supports the REIT. We've just talked, for example, about the new acquisition and being anchored by Ramsay. I'll come back to that. It's an operator-led environment.
We've talked a lot about how we have deep strategic relationships with our operators. That helps if we can sit alongside someone like Ramsay and say, "Well, we could build you a day surgery, or we could buy you one, and you could lease it from us." That allows a deeper and broader relationship. That's come through in this period, actually. We had Ramsay Health Care as a key tenant for a day surgery in Cleveland in our other strategy. That relationship has flown through into an opportunity which we executed in REP in this period, being the tenant in the Cairns day surgery facility, so having that by side, there's no priorities. The assets are not suitable for REP, but we get these flow-on impacts to REP that are all positive. Thank you.
And just finally, just on valuations, I suppose if you're developing things at a 7% yield, you're looking to buy things at a 7% yield, how does that then stack up? Is that where the market is relative to your circa 6% cap rates on your existing assets? 'Cause I think you sold, was it your Onger and your Niel? I forgot the other name. But two of your retail assets, I think one was at a 6%-7% discount to book, and the other one was closer to 14%. Please correct me if I'm wrong. But just to comment on valuations, 'cause I suppose if you're looking to deploy capital at 7%, and clearly the market at the moment is pricing you probably at a similar sort of implied gross cap rate.
But yes, just appreciate your thoughts on the valuations if NTA could fall further given what you're looking to deploy out, please. No, look, there's a lot in that question. I'll try and answer it with the valuation, stabilization or cap rate stabilization. We're certainly starting to get that impression based on our engagement with our valuers. Our valuers are appointed as an objective third party. They're entitled to review the asset not in consultation with us. So they determine these cap rates on their own. So valuers, I would, you know, I would speculate, to a broader cross-section are starting to sense a stabilization.
The reason why we charted that particular part of the cycle in healthcare and how we're being able to extract opportunities we would suggest is going to be a fairly narrow period of time to be able to do that. Now, valuers don't just simply move up and down based on one trade. They will gather evidence and adopt what they believe is an appropriate market benchmark for each of their trade areas and each of the sectors they work on. So I can't reflect too much on what valuer assessment might be other than from our perspective, we are sensing that cap rates are stabilizing.
So, to reflect upon a single asset sale that may or may not have been engaged on a whole, on a comprehensive on-market campaign versus a select off-market campaign or a direct approach is something I'm not prepared to do, nor should others.
But I think, of course, I mean, ultimately, I think we're just what we're saying is, and I think we said in the presentation is we anticipate cap rates to be stable here. That's where we forecast we'd get to, which means the NTA will be roughly stable.
Thank you.
That's all from me. Thanks.