Arena REIT active on acquisitions and completion front in solid HY21 results

Arena REIT has followed through on its positive trading update in December 2020 and delivered a solid set of HY2021 results in which acquisition and completion activity in the early childhood education and care (ECEC) space was the key stand out and driver of performance. 

 

A total of seven operating centres were acquired and seven development centres completed in the period, which net of three centre disposals, increased the total ECEC portfolio to 222, up 5.2 per cent from June 2020. 

 

The portfolio growth, and a 2.6 per cent like for like ECEC rental increase, contributed to a 7 per cent increase in property income of $1.7 million to $28.2 million. 

 

Arena’s Managing Director Mr Rob de Vos said “I would like to acknowledge the efforts and achievements of our tenant partners and the Arena team over the first half FY21 in delivering  positive portfolio, investment and community outcomes.”

 

Development pipeline supported by new acquisitions

 

The trust’s development pipeline closed the period at twelve centres, down from 17 centres as at June 2020 and materially higher than the low levels recorded across 2018 and the first half of 2019. 

 

Two new development sites were acquired in the period with a further three that are conditionally contracted prior to 31 December 2020 and due to settle in 2021. Once settled the overall development pipeline will sit at 13 centres at a forecasted cost of $74 million to complete. 

 

Five of the projects are expected to deliver in the second half of FY21 with the balance due to deliver in FY22. 

 

Rent review increases accompanied by portfolio revaluation uplift

 

Average like for like rental increases were 2.6 per cent in HY21 with annual rent reviews completed for 55.4 per cent of the portfolio however 36 reviews remain outstanding as at the year end, with the FY20 component representing around 8 per cent of income. 

 

Rent as a percentage of gross revenues at Arena’s tenants now sits at 11.3 per cent, around 60 basis points higher than at June 2020, although the trust did acknowledge that COVID-19 related operational and funding activity may impact the accuracy of this reading. 

 

Valuation gains were recognised across the ECEC portfolio of $31.6 million, representing a 4.1 per cent increase, with all ECEC assets undergoing either an independent or director’s valuation. The trust’s healthcare assets reported a 2.7 per cent increase in value. 

 

Balance sheet supportive of future acquisition growth

 

As at 31 December 2020 Arena had $28.8 million in cash and an undrawn debt capacity of $95 million to fund the balance of the development pipeline of around $30 million. 

 

Current debt levels sit at $234 million, with the weighted average cost of debt at 2.9 per cent, the weighted average facility term sitting at three years with no expiry until March 2023, and balance sheet gearing at 19.9 per cent. 

 

Commenting on Arena’s financial position, Chief Financial Officer Mr Gareth Winter said “We continue to operate well within our covenant requirements with capacity to deploy capital into the development pipeline and additional investment opportunities for growth.”