Arena REIT Equity Raising1 June 2020
Arena REIT advised minimal impacts from COVID 19 but announced today a $60M equity raising to reduce debt in its portfolio.
Arena estimates approximately 23% of its tenants are covered under the National Cabinet Mandatory Code of Conduct, and rent relief agreements have been reached where justified. Approximately 90% of rental payments due from tenants has been received for the last 3 months (March to May 2020). Rent relief provided to tenants has largely been deferred; the level of rental abatement for the last 3 months (March to May 2020) is not material.
The Group indicated that the Government’s response through the Early Childhood Education and Care Relief Package (ECECRP) and the JobKeeper package has provided a robust childcare and healthcare system. Each of Arena’s ELC tenant partners qualify for the ECERP and JobKeeper package.
There are however concerns for the sector when these entitlements disappear. Prior to COVID19 profitability of ELCs has been constrained by increasing attendances and therefore rising costs being incurred at a time when Government funding has been fixed and operators are unable to charge fees. The Federal Government is reviewing the ECECRP and future support of the early learning sector beyond 30 June 2020 and until this is clarified, uncertainties will remain.
To ensure the REIT is well capitalised to face these challenges, the Board has decided to undertake a fully underwritten A$50 million Institutional Placement at an issue price of A$2.28 per Placement Security and a $10m Security Purchase Plan.
The issue price represents a -5.0% discount to the last closing price of A$2.40 on 1 June 2020 and a -33% discount to the pre-covid high of $3.38 per security.
Arena advises that the proceeds will be used to provide capacity to pursue further social infrastructure property investments consistent with Arena’s investment objective, however almost all of the proceeds will used to repay debt facilities which will reduce gearing from 23.2% to 17.6%. Debt limits will remain unchanged which will provide capacity for the Group to draw debt to fund acquisitions if conditions are right.
Arena have also noted that independent valuations of 100% of the portfolio as a June 2020 indicate a lift of $15m in total value or 5 cents per security.