Arena REIT announces a net operating profit for FY20 of $43.8 million, an increase of 16% on the prior year.
Key contributors to the operating result were rental income growth from contracted annual and market rent reviews, acquisition of operating early learning centres (ELC) and healthcare properties and income from development projects completed throughout FY19 and FY20. The result represents EPS of 14.55 cents, an increase of 5% over the prior year.
There has been a strong rebound in occupancy levels post easing of lockdown restrictions (outside greater Melbourne) with occupancy levels generally within 5% of pre-COVID-19 levels and higher in some cases. There is continued uncertainty in lockdown affected areas (greater Melbourne and regional Victoria); however current government support has been designed to maintain operator viability. The Government responded strongly to the impact of COVID-19 on the ELC sector including the implementation of the Early Childhood Education and Care Relief Package (ECECRP), JobKeeper package, ELC transition payment and top-ups for lockdown affected areas, relaxation of the activity test and waiver of gap fees and additional absence days for COVID-19 related reasons.
Arena has paid a full-year distribution of 14.0 cents per security, up 4% on the prior year. Statutory net profit for the year was $76.6 million, an increase of 29% on the prior year. Arena’s total assets increased by 23% to $1,012.6 million as a result of acquisitions, development capital expenditure and the positive revaluation of the portfolio. The revaluation uplift was the primary contributor to the 6% increase in NAV per security to $2.222 at 30 June 2020.
Commenting in respect of today’s announcement, Arena’s Managing Director Mr Rob de Vos said “I would like to acknowledge the impact and challenges COVID-19 has brought to many communities and on behalf of Arena I would like to express our gratitude to our tenant partners and the front line workers in each of our early learning and health care properties. Despite ongoing uncertainty, we remain confident in Arena’s strategy, the strength of our portfolio and the important contribution the services we accommodate will make in aiding economic recovery and improving future community outcomes.”
PORTFOLIO HIGHLIGHTS
- 100% occupancy maintained
- Average like-for-like rent review increase of 3.4%
- Weighted average lease expiry (WALE) maintained at 14 years
- Portfolio revaluation uplift of $36.9 million
- Portfolio weighted average passing yield of 6.22%
- Acquired $11 million multi-disciplinary healthcare centre at 6.5% initial yield on total cost
- Acquired three ELC properties with 6.2% weighted average initial yield on total cost of $15.5 million
- Acquired 17 development projects taking development pipeline to 204 projects with forecast weighted average initial yield of 6.6% on total anticipated cost of $112 million
- Three ELC development projects completed at 6.7% weighted average initial yield on total cost of $17 million
Rent reviews during the year resulted in an average like-for-like rent increase of 3.4%. Contributing to this result were ten FY19 market rent reviews which were completed during FY20 at an average increase of 18.9%5 . COVID-19 rent relief Rent relief provided by Arena to tenant partners as a result of COVID-19 amounted to 4% of contracted rent for FY20, of which 3.5% was deferred and will be collected in future periods; 71% is scheduled to be collected in FY21, and 0.5% was abated.
Occupancy was maintained at 100% and the portfolio’s WALE was maintained at 14 years following the completion of three ELC development projects, one healthcare and three ELC acquisitions with a total initial weighted average lease term of 18 years.
Five ELC properties were divested during FY20 at an average premium of 11.6% to book value with proceeds to be reinvested into the development pipeline. Four operating ELC’s and an $11 million multi-disciplinary healthcare centre were acquired at a net initial yield on total cost of 6.5% with a weighted average lease term of 18 years. Three ELC development projects were completed at a net initial yield on cost of 6.7% with a weighted average initial lease term of 22 years and 174 new ELC development sites were acquired.
At 30 June 2020, Arena’s portfolio comprised 211 ELC properties and 176 ELC development sites (85% of portfolio by value) and eleven healthcare properties (15% of portfolio by value). All 222 operating properties were independently valued as at 30 June 2020. A revaluation uplift of $36.9 million was recorded for FY20, equivalent to an increase of 4.6%. The portfolio’s weighted average passing yield firmed 10 basis points to 6.22%. The weighted average passing yield on the ELC portfolio firmed 21 basis points to 6.24% and the valuation of the healthcare portfolio remained in line with previous period at 6.12%.
At 30 June 2020, Arena’s gearing11 was 14.8%, compared with 22.1% at 30 June 2019 with $76 million of cash reserves and $115 million of undrawn debt capacity as at balance date to fund development capital expenditure (forecast at $57 million) and new investment opportunities.
Commenting on Arena’s financial position, Chief Financial Officer Mr Gareth Winter said “We are operating well within our banking covenant requirements and have raised new equity to provide capacity to pursue future social infrastructure property investments consistent with strategy while also improving liquidity and reducing gearing.
Arena provides FY21 DPS guidance of 14.4-14.612 cents per security reflecting growth of 3-4% over FY20.
Mr de Vos said “Arena remains well positioned to navigate the ongoing and emerging challenges arising from COVID-19 and to consider new opportunities that are consistent with strategy and Arena’s investment objective of delivering an attractive and predictable distribution to investors with earnings growth prospects over the medium to long term.”
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