Arena REIT posts strong FY26 growth but flags uncertainty following Edge Early Learning default

Arena REIT has reported a 62 per cent increase in statutory profit for FY26, supported by rental growth, new early learning centre developments and property revaluations, while flagging uncertainty for the year ahead following the issuing of default notices to Edge Early Learning across 31 leases.

The social infrastructure property investor reported total income of $162.4 million, up 39 per cent on the previous year, while statutory net profit increased from $81.5 million to $131.8 million.

Net operating profit, or distributable income, increased eight per cent to $79.1 million, with Arena attributing the increase primarily to annual rent increases and market reviews, rental income commencing from completed early learning centre (ELC) developments and operating properties acquired during the year, and the full-year contribution of FY25 acquisitions and developments.

Distributions increased to 19.25 cents per security, compared with 18.25 cents in FY25, while net asset value increased to $3.60 per security.

Early learning remains at the centre of Arena's investment strategy, with 91 per cent of its property portfolio invested in ELCs and ELC development sites at the end of FY26.

During the year Arena acquired two operating ELCs and 21 ELC development sites, completed 11 ELC developments and divested 11 ELC properties.

At 30 June, the portfolio comprised 274 leased ELC properties, 10 healthcare properties and 23 ELC development sites.

The total value of Arena's investment properties increased eight per cent to $1.914 billion, supported by $161 million in property acquisitions, development and capital expenditure and a net $47 million portfolio revaluation increase.

Portfolio occupancy remained at 100 per cent, with a weighted average lease expiry of 17.5 years.

The results demonstrate the continuing scale of institutional investment behind Australia's early learning property market, but Arena's annual report also highlights the risks associated with its exposure to a relatively concentrated group of major ECEC operators.

Arena's five largest tenants account for 71 per cent of portfolio income, excluding developments.

Goodstart Early Learning is Arena's largest tenant, accounting for 19 per cent, followed by Green Leaves Early Learning at 16 per cent.

Edge Early Learning accounts for 14 per cent, while Aspire Education and Affinity Education each represent 11 per cent.

Arena identifies this concentration as a material business risk, noting that deterioration in the operating performance of major tenants could affect their capacity to meet lease obligations and potentially reduce Arena's income and portfolio value if suitable replacement tenants cannot be found.

That risk came into sharper focus shortly after the end of the financial year.

On 4 August 2026, Arena issued default notices to Edge Early Learning in respect of 31 leases following the non-payment of rent due on 3 August.

Arena's report states that Edge had previously paid all rent due up to 31 July.

It also reveals that Edge had approached Arena in late July seeking a deferral or abatement of rent while undertaking a corporate restructure.

Arena declined the request.

The Group has since engaged with Edge and appointed McGrathNicol to assist in considering the matter, while continuing discussions with the operator regarding its lease obligations and potential pathways forward.

At the date of the report, Edge and its lender had up to 21 days to remedy the default.

Arena has also assessed and recognised the effect of the matter on the carrying value of its assets at 30 June.

The Edge situation has had a direct bearing on Arena's outlook for FY27.

Arena has provided distribution guidance of not less than 18 cents per security for the year ahead, compared with the 19.25 cents distributed in FY26.

Significantly, Arena's guidance assumes no income from the Edge portfolio from 1 August 2026 through to the end of FY27, net of $4 million in liquid security which is assumed to be applied against outstanding rent.

The guidance also assumes no further acquisitions or disposals and no material change in current market or operating conditions.

Arena described its approach as prudent given the range of potential outcomes relating to the Edge portfolio and said guidance would be updated as further information regarding rental income became available.

Arena's continued investment and development activity has also increased borrowings.

The Group refinanced its syndicated debt facility in February, increasing its limit by $100 million to $700 million and extending maturity dates.

Borrowings increased by $74 million during the year to fund acquisitions and development capital expenditure, partially offset by proceeds from asset sales.

Gearing consequently increased from 22.8 per cent to 24.5 per cent.

Arena nevertheless remained comfortably within its banking covenants, reporting a loan-to-valuation ratio of 29.8 per cent against a covenant of 50 per cent and an interest cover ratio of 4.7 times against a minimum covenant of 2.0 times.

Interest rate swaps covered 100 per cent of borrowings at 30 June.

Arena's FY26 result highlights two sides of Australia's early learning property market.

On one hand, the Group continued to deploy significant capital into early learning infrastructure, added new development sites and operating centres, maintained full portfolio occupancy and generated increased rental income from its ELC investments.

On the other, developments involving Edge demonstrate why the financial performance of major operators matters beyond individual services.

With Arena holding hundreds of early learning properties and its five largest ECEC tenants responsible for the majority of portfolio income, the financial strength and operating performance of providers are intrinsically connected with landlords, developers, lenders and investors supporting the sector's physical infrastructure.

Arena itself acknowledges this exposure, noting that early learning operators rely heavily on government funding and operate within accreditation and licensing regimes, with regulatory breaches or policy changes potentially affecting tenant performance and their ability to meet lease obligations.

For now, Arena enters FY27 following a year of strong financial and portfolio growth.

However, with its guidance assuming no further rental income from the Edge portfolio for the remainder of the financial year, the outcome of the 31 lease defaults and Edge's corporate restructure will remain a significant issue to watch.

Read Arena’s full year results here.