Profits Fall $138.2 Million for Arena REIT [ASX:ARF]

Australian childcare centre-focused trust Arena REIT [ASX:ARF] has announced its net profit for the six months through to the end of December 2022 has taken a significant fall in profit compared to a year before.

The REIT said it gained $47.6 million in profit in the first half of FY23, whereas it had $185 million in 1H FY22.

EPS (earnings per share) went up 7.8% with a dividend of 8.4 cents a share.

Shareholders were mostly neutral to the REIT stock, with there being little movement. However, ARF has been down 24% in the last 12 months and below the wider market average by 28%.

Source: tradingview.com

Arena REIT’s profits fall, half year results revealed

For the half year that ended 31 December 2022, Arena reported a fall of 74% in statutory net profit compared to the same time last year, explaining this was mostly due to lower investment property revaluations.

However, Arena calculated a net operating profit of $29.9 million, an increase of 8.6% from the same time last year.

Arena said key contributors to its income growth were assisted by contracted annual rent reviews, acquisitions and development projects completed in both financial years 2022 and 2023.

The REIT decided to bump up its earnings per share by 7.8% on the prior period, dishing out 8.59 cents per share.

The company paid out DPS (dividends per share) of 8.4 cents in the half-year, also an increase on the prior period of 6.3%.

The trust’s total assets increased by 4% from 30 June 2022 to the grand total of $1.58 billion, which were, according to the company, the results of acquisitions, development capital expenditure and encouraging movements in portfolio revaluations.

Two operating ELC properties were acquired for $7.8 million at a net initial yield on a total cost of 6.0%. Seven ELC development projects were completed for $44.3 million at a net initial yield on cost of 5.9% on top of acquiring another seven new ELC development projects.

Mr Rob de Vos, Arena’s Managing Director, commented:

‘Our team and tenant partners have continued to work hard during the period. Arena has delivered seven new high quality, purpose built early learning centres for local communities and our tenant partners continue to report strong underlying business occupancy.’

Arena’s portfolio and outlook

The REIT currently has a weighted average lease expiry (WALE) of approximately 19 and a half years, with 99.6% of its portfolio occupied and all its contracted rent received to the end of December.

Arena’s development pipeline consists of fifteen ELC projects at a total forecast cost of $106 million with an increase of 6.45% average in like-for-like rent.

The group expects to pay a distribution of 16.8 cents per security for FY23, reflecting a 5% growth in 2022.

The REIT anticipates ongoing economic challenges, rising unemployment, inflation, and rates, which could negatively impact operations.

Nevertheless, hope was offered as Mr de Vos said the group’s community focus will offer ‘value proposition which provides inflation protected, long term income predictability with earnings growth prospects over the medium to long term.’

Regards,

Mahlia Stewart,

For The Daily Reckoning

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