Arena REIT reports 2019 results supported by robust ELC market rent reviews

Arena REIT (ARF), the social infrastructure investment trust with significant exposure to the early childhood education and care (ECEC) sector has released its full year 2019 results in which it reported solid rent review and rental growth performances. 

 

The company reported total operating income of $49.3 million, an increase of 14 per cent on last year, and a net operating profit up 9 per cent at $37.7 million. 

 

Statutory profits, like their peer Charter Hall Education Trust, fell in the period due to lower revaluation increments and, in the case of Arena, the revaluation of their interest rate hedge positions. 

 

Arena reported statutory profits of $59.3 million down from $64.4 million the previous year. 

 

Earnings per unit were 13.8 centres up 5.3 per cent and the distribution per unit was 13.5 cents up 5.5 per cent. 

 

ELC portfolio rises by 9 centres and sees market rent reviews up 9.4 per cent year

 

The Trust increased the number of leased early learning centres (ELCs) by 8 to 210 centres, and the number of development sites by one to six sites. 

 

Overall Goodstart Early Learning continues to be the largest ELC tenant by income with 31 per cent, followed by Green Leaves with 14 per cent, and Affinity Education with 11 per cent. 

 

Healius, Arena’s healthcare portfolio partner, commanded 12 per cent of rental income despite it having only 4.4 per cent of total assets. 

 

With respect to rent reviews, the annual like for like increase in rents was 3.6 per cent compared to 2.6 per cent and the 2.3 per cent reported by Charter Hall Education Trust last week. 

 

Notably, Arena also confirmed that the average annual market rent review increase in the ELC portfolio was 9.4 per cent, a significant jump on last year’s 6.3 per cent, and the largest for at least the last 5 years. 

 

Development completions cool after busy 2017 and 2018 but outlook remains positive

 

The number of ELC centres completed in 2019 fell to 4, from the 14 in 2018, and 8 in 2017, with a total cost of $25.0 million and a yield on cost of 6.4 per cent once let. 

 

The development pipeline consists of nine ELC projects with a forecast cost of $50 million, an increase from the five projects they had on their books this time last year. 

 

The Trust remains constructive on the future of the ECEC sector’s fundamentals and highlighted the ongoing strong workforce participation trends, robust long day care participation rates and improved affordability created by the introduction of the Child Care Subsidy in July 2018. 

 

Commenting on the state of the market Rob de Vos, Chief Executive Officer, noted “Our tenant partners continue to report a positive impact from the introduction of the CCS with higher occupancy and fee growth. Combined with a more measured approach to new ELC supply across the sector, we view the market as conducive to opportunities.”

 

To read more about Arena REIT’s 2019 results please click here for the statement and here for the presentation.