Arena REIT To Pay 4.05 Cents Quarterly Distribution On August 4

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Arena REIT To Pay 4.05 Cents Quarterly Distribution On August 4

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  • Arena generated a $102M or 7.8 percent revaluation uplift in the six months to June 2022
  • Passing yield of 4.91 percent, and Weighted Average Lease Expiry of 20 years
  • 100 percent occupancy and high tenancy renewal rate supports long term growth outlook
  • 70 percent land backing in high population density areas underpins property valuations
  • Average daily childcare fee is $120.27, an increase of 5.35 percent in FY22
  • Average like-for-like rent increase in FY22 of 4.1 percent
  • Arena is a stable and steadily growing REIT that will trade well throughout the economic cycle.

Arena REIT (Arena or ARF) is an internally managed stapled real estate Group that owns, manages and develops social infrastructure properties across Australia. Arena REIT's portfolio of social infrastructure properties is leased to a diversified tenant base in the growing early learning and healthcare sectors.

4.05 cents Quarterly Distribution

Arena has announced a 4.05 cents per stapled security distribution for the quarter ending 30 June 2022. The distribution will be paid to unitholders on 4 August.

Arena’s Dividend and Distribution Reinvestment Plan (DRP) will operate in respect of the distribution. New securities will be priced at a 1.5 percent discount to the 10-day volume weighted average trading price during the pricing period between 4 and 15 July.

June Market Update

Arena’s property portfolio reported a $102 million or 7.8 percent revaluation uplift for the six-month period to 30 June 2022. This is equivalent to a 29 cents increase in Net Asset Value (NAV) per security.

Forty-eight Early Learning Centre (ELC) assets and three healthcare assets were independently valued with the remaining ELC and healthcare assets and development projects valued by Directors.

$93 million of the $102 million valuation uplift relates to the ELC portfolio. The Weighted average passing yield of the total portfolio at June 2022 was 4.91 percent per annum, supported by a 100 percent occupancy rate and a Weighted Average Lease Expiry of 20 years.

The strong underlying financial and performance metrics of the property portfolio can be attributed to the unique features of the ELC sector.

Firstly, the demand for child-care centres is supported by population growth and growing government subsidies for childcare support, which explains the 100 percent occupancy and high tenancy renewal rate. Secondly, leases over ELCs are typically triple-net leases, which means that the tenant pays for all property outgoings, insurance, and maintenance costs, as well as the rent. Workplace, health and safety standards involving children are onerous and so maintenance and safety standards are uncompromisingly high.

Thirdly, childcare centre valuations are supported by a relatively high proportion of land backing given the regulated floor space ratios for children. Land-rich properties in high population density areas tend to value well under these circumstances.

Importantly, Arena is internally managed. This single ownership and management structure aligns management and securityholder’s interests in decision-making, ensuring a strong security holder return focus.

ELC Sector

Australia’s Labor Federal government is committed to reducing the cost of childcare and plans to increase the maximum Child Care Subsidy (CCS) rate to 90 percent for the first child in care and to keep the CCS rate at 95 percent for second and additional children, for households with income of up to $530,000. This is designed to improve workforce participation, gender equality, and women’s financial security over the long term.

Childcare fees continue to rise and this in turn supports Arena’s medium and long-term earnings outlook. Over the 12 months to March 2022, the average daily fee increased by 5.35 percent to $120.27 per child.  Rent reviews during FY22 resulted in an average like-for-like rent increase of 4.1 percent.

Rising inflation risks are well covered by Arena, with annual rent reviews predominantly subject to an increase of the higher of an agreed fixed increase or CPI.

Arena is a low-risk exposure to ongoing demand growth for childcare services in Australia, with long-dated, triple-net leases, supported by politically sensitive government subsidies. Property values are backed by approximately 70 percent of land value, which also supports property NAVs.

Arena is a stable and steadily growing REIT that will continue to trade well throughout the economic cycle.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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