Australia-based Arena REIT (ASX: ARF) reported an 8% increase in net operating profit to $79 million for the fiscal year ended June 30, 2026, driven by portfolio growth and rising property income. Operating earnings per security rose 5.7% to 19.60 cents, while total assets expanded 8% to $2.016 billion, with investment properties valued at $1.914 billion.
The company deployed $161 million into acquisitions and developments during the year, lifting net asset value per security by 4% to $3.60. Property income grew 10.3%, supported by a 27% increase in interest income, though operating expenses climbed 21.6%. Statutory net profit surged 62% to $132 million, while the gearing ratio rose 170 basis points to 24.5%. Shares gained 3.72% to $2.51 following the announcement.
Arena flagged tenant risk after Edge Early Learning, which operates 31 childcare centres valued at $219 million, defaulted on rent payments. The operator requested rental relief in late July 2026, which Arena declined, leading to a missed payment on August 3. Default notices were issued on August 4. Edge’s portfolio represents 14% of Arena’s annual rental income, with Arena holding $4 million in bank guarantees and security deposits as collateral.
Regulatory suspensions affected two of Edge’s centres in South Australia, while the operator voluntarily suspended two additional locations. Arena has since re-leased two newly developed Edge centres—one in Queensland and one in South Australia—signing 20-year leases with a national operator at equivalent rents. The Edge portfolio includes 22 stabilized centres, seven in ramp-up, and two completed but yet to open, with an average age of 6.7 years and 109 childcare places per centre.
Arena maintained 100% occupancy across its 307 properties, with a weighted average lease expiry of 17.5 years. The portfolio remains heavily weighted toward early learning at 91%, with healthcare accounting for the remaining 9%. Goodstart leads tenant income at 23%, followed by Green Leaves (19%), Edge (16%), Aspire (14%), and Affinity (12%). Geographically, Queensland holds 33% of exposure, New South Wales 29%, and Victoria 17%.
Capital management improved as Arena extended its weighted average facility term to 4.0 years and increased hedge cover to 100%, with a weighted average hedge rate of 2.82%. Undrawn debt capacity stood at $189 million, sufficient to fund $121 million in outstanding early learning centre development commitments. The portfolio’s weighted average passing yield rose 9 basis points to 5.56%.
Arena acquired three new early learning centres for $19.6 million at a weighted average initial yield of 6.2% and divested 11 properties for $53.5 million at an 8% premium to book value. The company also expanded its development pipeline to 29 projects across six states, with forecast total costs of $228 million and $121 million in outstanding capex.
Looking ahead, Arena guided for a distribution of no less than 18.0 cents per security for FY2027, assuming zero income from the Edge portfolio from August 1, 2026, after applying $4 million in liquid security toward outstanding rent.
