Arena maintains ECEC focus with significant acquisitions and corresponding capital raise

Early childhood education and care (ECEC) landlord Arena REIT has exchanged contracts or entered into heads of agreements to acquire and develop a portfolio of ten centres and confirmed a c$140 million capital raise to support financing the transaction. 

 

Arena, which as recently as last month confirmed strong trading across its tenant network of 276 centres, has remained steadfast in its commitment to broaden its exposure in the ECEC sector whilst its larger rival Charter Hall Social Infrastructure Fund continues to rationalise its portfolio and draw down on its green field pipeline. 

 

“Strong macroeconomic drivers continue to support growth in the demand for essential community services across Australia,” Managing Director Mr Rob de Vos said.

 

“These themes, combined with Arena’s disciplined origination, capital management and asset management expertise have positioned the business well to sustainably deliver on its purpose and investment objective of delivering predictable distributions to securityholders with the prospect for growth.”

 

Affinity and Aspire centres at heart of transaction 

 

The transaction consists of two tranches of centres with counterparties that are well known to Arena and from an operating perspective already have substantial tenant portfolios in place.

 

Six currently operating centres, grouped under one brand and owned by existing tenant partner Affinity Education Group located in New South Wales, will be acquired as a portfolio for $58 million, a yield of 6.0 per cent. 

 

A further four high-quality, purpose-built development opportunities will also be pursued in a collaboration with existing tenant partner Aspire Early Learning. The additions will see Arena’s development pipeline grow to 20, or around six per cent of the total portfolio, which compares favourably to Charter Hall who were carrying just three as at their HY24 results.

 

The total cost anticipated to convert Arena’s development pipeline is estimated to be $135 million, with $96 million, a substantial amount which has prompted the capital raise. 

 

Fully underwritten placement plus SPP to raise up to $140 million in total

 

As of the time of the announcement Arena had already undertaken a fully underwritten $120 million institutional placement at an issue price of $3.78, a 4.5 per cent discount to the last closing price of $3.96 on 22 July 2024 and 5.1 per cent discount to the 5-day Volume Weighted Average Price (VWAP).

 

In addition, eligible security holders will be invited to subscribe for up to $30,000 of Security Purchase Plan securities per security holder, free of transaction and brokerage costs with a target raise amount of $20 million confirmed. 

 

The placement raise will be used to fund acquisitions ($92 million) and pay down debt ($25 million) with a further $3 million allocated to transaction costs. 

 

As well as supporting the financing of acquisitions the impact of the equity raise on the balance sheet will be significant with gearing reduced by 270 basis points to 19.9 per cent and interest cover increased by 0.8x to 5.7x. 

 

To learn more about Arena and the transaction please click here for the press release and here for the presentation.