Is Arena REIT No 1 (ASX: ARF) the best REIT on the ASX for income?
Arena is a real estate investment trust (REIT) in the ASX300 that owns, manages and develops social infrastructure such as childcare centres and healthcare properties. Its property portfolio is leased to a diverse group of tenants.
What’s Going On At Arena?
Arena REIT is currently in a trading halt after announcing some acquisitions and a capital raising. It has exchanged contracts or entered into an agreement to acquire (and develop) with a total investment of $62 million.
There are three different parts to Arena’s acquisitions.
The first part is a $24 million investment in three specialist disability accommodation properties.
The second is three childcare centres for $13 million.
The third is five childcare developments with a total anticipated project investment of $25 million.
This will be funded by a $50 million institutional capital raising at a price of $2.67 per share. Arena REIT will also tap regular investors for up to $5 million.
The idea behind the acquisitions is that the properties are well located, supported by fundamental drivers such as population growth and increasing female workforce participation, provide reliable income underpinned by long leases and contracted rental growth with high quality tenants.
The acquisitions come with a weighted average yield of 6.5% and a weighted average lease expiry (WALE) of 18 years.
Arena Managing Director Rob de Vos said: “Improvement in the operating environment for our early learning tenant partners is providing new opportunities for disciplined investment.
Is Arena A Buy For Income?
The total FY19 distribution is 13.5 cents, which translates to a distribution yield of 4.8% at the trade-halted price.
However, the REIT also announced that the FY20 distribution would be increased by 5.9% to 14.3 cents per security. This represents a distribution yield of 5.4% at the institutional placement price.
Arena has been successful at growing its distribution each year to shareholders at a solid pace whilst also offering a decent level of income in the current year. The long lease periods and 100% occupancy are two attractive factors to me.
My main concern is that Arena seems to be trading at a sizeable premium to the underlying net tangible assets (NTA) of $2.03 at the end of December 2018.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.