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Arena REIT reports strong operating results, passes significant ECEC portfolio revaluations
Jason Roberts
Feb 14, 2022
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Arena REIT has reported robust half year results as benign operating conditions and substantial portfolio revaluations lift both operating and statutory profits to record levels compared to previous mid year reporting periods.
Net operating profit (distributable income) was $27.5 million, up 11 per cent on the corresponding period last year, and statutory net profit was $185.8 million, up 204 per cent on the prior period, with the Trust also reporting an increase in total assets of 17 per cent as driven largely by a major revaluation of the portfolio.“I would like to acknowledge the significant efforts and achievements of our tenant partners under ongoing challenging conditions,” Arena Managing Director Rob de Vos said.
“I’d also like to express my appreciation to the Arena team for their dedication, hard work and true partnership approach in delivering positive community and investment outcomes.”
Strong underlying operating performance despite “challenging conditions” for tenants
Despite the challenging conditions referred to by Mr de Vos, Arena’s early childhood education and care (ECEC) portfolio, which consists of 226 centres, was fully occupied with 100 per cent of contracted rent received in the period.
Annual rent reviews were conducted for 56.3 per cent of the overall portfolio with like for like rental increases in ECEC at 3.65 per cent, up from 2.60 per cent last year and slightly higher than the average increases reported over the last five years.
Rent as a percentage of tenant revenues was 10.3 per cent, down one per cent from last year. Fee increases of around 7.2 per cent passed by tenants since December 2020 helped to absorb any incremental rental increases and maintain downward pressure on the rent as a percentage of revenue ratio.
Average daily fees across the tenants in its network now stand at $116.87.
ECEC portfolio sees 14.6 per cent revaluation uplifts as yields pushed substantially down
Arena valued all assets across its portfolio, both ECEC and healthcare in the period, with 51 of its 256 properties valued externally and the remaining 205 valued internally by the directors themselves.
The result was a valuation uplift across the whole portfolio of $153.3 million, or 13.8 per cent, of which the ECEC portfolio saw an increase of $139.9 million, or 14.6 per cent, marking the largest single valuation increase for at least the last six years.
The passing yield of the ECEC portfolio now stands at just 5.13 per cent, a 71 basis point reduction from June 2021.
Overall ECEC yields have now fallen over 50 per cent from those used to value the portfolio in June 2013 with the most recent reductions larger in terms of basis points than any passed in the period.
With over 80 per cent of valuations conducted by the directors it is clear that robust operating performances and strong second hand freehold sales results are contributing to a sense of confidence hitherto not experienced by the Trust.
ECEC development pipeline reaches at least six year highs
The Trust’s ECEC development pipeline has now reached nineteen centres, up from twelve announced at its full year results in June 2021 and at levels not seen for at least six years in another reflection of the Trust’s confidence in the current operating environment.
The centres are likely to be completed over the next eighteen to twenty four months and are expected to cost around $122 million to complete, a figure which is more than covered by existing cash levels of $26 million and an increase in borrowing capacity of $100 million secured in the period.
Arena’s balance sheet metrics appear solid, with gearing at 18.8 per cent, although the revaluations passed to the ECEC portfolio have supported the falls in this key metric.
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