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Arena REIT profit growth of 9%


Arena REIT announced their FY19 results, reporting that new investment and rental increases delivered the REIT a net operating profit of $37.7 million, an increase of 9% on the prior year.

Declining interest rates have caused marked to market interest rate hedges to cause statutory profits to be down 8% to $59.3m, however distributions per security remain up 5.3% on the prior year.

As per the chart below, Arena REIT has outperformed the broader AREIT index over the past months with the unit price up 25% vs the market up 15%.

Financial Highlights

  • Net operating profit (distributable income) of $37.7 million, up 9% on prior year

  • Statutory net profit $59.3 million, down 8% primarily due to revaluation of interest rate hedges

  • Earnings per security (EPS) of 13.8 cents, up 5.3% on prior year

  • Distributions per security (DPS) of 13.5 cents, up 5.5% on prior year

  • Total Assets of $825.7 million, up 14% on 30 June 2018

  • Net Asset Value (NAV) per security of $2.10, up 7% on 30 June 2018

  • Gearing 22.8%, down from 24.7% at 30 June :2018

  • FY20 DPS guidance 14.3 cents per security, reflecting growth of 5.9% on FY19

Key contributors to the operating result were rental income growth from annual rent reviews, income from new investment in operating properties and the completion of development projects in FY18 and FY19. The result represents EPS of 13.8 cents, an increase of 5.3% over the prior year. Arena has paid a full-year distribution of 13.5 cents per security, up 5.5% on the prior year.

Statutory net profit for the year was $59.3 million, 8% down on the prior year, primarily due to the revaluation of interest rate hedges ($8.6 million) in FY19 compared with ($0.6 million) in FY18.

Arena's total assets increased by 14% to $825.7 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 7% increase in NAV per security to $2.10 at 30 June 2019.

Portfolio

Rent reviews during the year resulted in an average like-for-like rent increase of 3.6%. Contributing to this result were 39 market rent reviews completed during FY19 at an average increase of 9.4%

Arena's healthcare portfolio leases with Healius were extended from an average of 4 years to 14.6 years during FY19 with the WALE extended to 14.1 years

Occupancy was maintained at 100% and the portfolio's weighted average lease expiry (WALE) was increased to 14.1 years (from 12.9 years at 30 June 2018). At 30 June 2019, Arena's portfolio comprised 216 ELC properties and development sites (85% of portfolio by value) and ten healthcare properties (15% of portfolio by value). All 226 properties were valued during FY19, 40 properties were independently valued at 31 December 2018 and 47 properties were independently valued at 30 June 2019, the balance were directors valuations. A revaluation uplift of $32.4 million was recorded for FY19, equivalent to an increase of 4.6%.

The portfolio's weighted average passing yield firmed 14 basis points to 6.38%. The weighted average passing yield on the ELC portfolio firmed 2 basis points to 6.44% and the valuation of the healthcare portfolio firmed 77 basis points to 6.08%.

ELC market commentary The underlying demographics for ELC demand remain supportive including:

• Record female workplace participation rate; • Strong long day care (LDC) participation rate; and • Improved affordability from the Child Care Subsidy (CCS)

New ELC supply is showing signs of moderation with growth of 3.9% in the 12 month period to 30 June 2019, down from 4.0% in the prior 12 montlh period.

OUTLOOK Arena reaffirms FY20 DPS guidance of 14.3 cents per security reflecting growth of 5.9% over FY19.

ARF Trading Chart vs ASX200 AREIT Blue - ARF, Purple ASX200 AREIT Last 12 months

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