Arena REIT holds back distributions

22 March 2020

Arena REIT reassured the market today that portfolio of Early Learning Centres and Healthcare assets provide essential services for the wider Australian community; both are well supported by strong macro-economic and demographic factors and have solid bipartisan Government support.


As at 31 December 2019, the portfolio comprised of 15% healthcare properties and 85% Early Learning Centre (ELC) properties (by value), with a 14.1 year WALE and less than 3.5% of portfolio income subject to expiry prior to FY2029. The group are aware of the risk to income and have indicated that they are committed to work in partnership with their tenants to ensure the continuity of services and predictable distributions to investors over the medium to long term. Arena indicated that all of their tenants are currently compliant with their rent obligations.


The Australian and State Governments yesterday announced their intention to adopt further social isolation measures, which may result in a material reduction in attendance of children in ELC’s. It has been reported that the Federal Government is currently considering financial support to families and ELC operators to assist in this environment.


Arena advised that they are currently working through the implications of the current environment, and advised that despite all tenants in rental income in respect of the March quarter has been, Arena is deferring the declaration of its usual distribution for the quarter ending 31 March 2020.


As at 31 December 2019, the group had undrawn debt capacity of $123 million which is in excess of Arena’s outstanding development capital expenditure requirements of $80 million and has no debt expiry falling due until March 2023. Arena’s debt covenants are a maximum loan to valuation (LVR) ratio of 50% (compared with gearing of 23.2% at 31 December 2019) and minimum interest cost ratio (ICR) of 2 times (compared with 6.4 times at 31 December 2019).


Arena’s Managing Director Rob de Vos said “We are aware of the impact that deferring the declaration of the quarterly distribution may have on our security holders. We are closely monitoring the situation in conjunction with our tenant partners and will communicate with security holders in respect to the distribution when we have greater clarity.”


Given the escalation of COVID-19 and associated uncertainty, Arena has determined it is prudent to withdraw FY20 distribution guidance at this time.