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ECEC landlord Arena REIT confirms strong operating performance persists across tenant portfolio
Jason Roberts
Jun 25, 2024
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Arena REIT, the leading freehold owner in the early childhood education and care (ECEC) sector, has released its annual pre close trading update highlighting that strong trading is persisting across its tenant portfolio.
Like-for-like operator occupancy across its network of tenants as at March 2024 were in line with March 2023 levels which were higher than any corresponding reporting period over the prior seven years with another year of robust fee increases, 9.11 per cent, supporting performance.
“Strong macroeconomic drivers continue to support growth in the demand for essential community services across Australia,” Arena’s Managing Director Mr Rob de Vos said.
“These themes, combined with Arena’s disciplined capital management, development and asset management expertise, as well as the integration of sustainability across the business, underpin Arena’s value proposition.”
Rising cap rates offset escalating rents as valuations changes flat line
Arena’s portfolio valuation program is expected to result in a net nil revaluation for the six month period ending 30 June 2024, which represents no material change in portfolio valuation or Net Asset Value (NAV) per security from 31 December 2023.
Capitalisation rates were 5.34 per cent, 21 basis points higher than this time last year and 10 basis points higher than December 2023, with the rise in rates offset by rent reviews during the period averaging 4.9 per cent.
Fixed rate leases will account for 79.1 per cent of leases across the portfolio this year with a weighted average lease expiry of 18.4 years and occupancy levels of 99.7 per cent as at 30 June 2024.
Average daily fees were confirmed at $141.38 with net rent to revenue ratios of 10.3 per cent.
Replenished development pipeline underwrites future growth
Ten development projects were acquired during FY2024 for a total expected cost of $64 million at a net yield on total cost of 6.3 per cent with the pipeline comprising 16 centres by the end of the financial year, the same level as at June 2023.
During 2024 eight ELC development sites were completed over FY2024 for a total investment of $59 million on a net yield on total cost of 5.2% with an initial weighted average lease term of 20 years.
One operating ELC, at a total cost of approximately $4.3m with a net yield on total cost of 6.5 per cent will be acquired, offsetting the one divested property sold during the year.
The Group extended the maturity dates on each tranche of its $500 million syndicated borrowing facility with the weighted average cost of debt as at 30 June 2024 4.0 per cent compared with 3.95 per cent as at 30 June 2023.
Arena’s FY2024 results will be released on Thursday 15 August 2024.
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