Arena REIT (ASX: ARF) has increased its FY27 distribution guidance by more than 10% after positive progress on its portfolio of assets occupied by Edge Early Learning Centres.
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Business failure put dividend at risk
The childcare operator was placed in administration in August, casting doubt over whether Arena would continue to receive rent for the 27 centres it owned which were occupied by Edge.
Arena originally provided guidance to the market that it would pay distributions of 18 cents per share in FY27, based on not receiving any rent from the Edge centres.
It has now increased this guidance to 19 cents to 20.2 cents per share, based on progress it has made on that front.
Based on the share price at the time of writing, this would result in the company paying a dividend yield of 8.2% at the upper end of the range.
The lower end of the distribution guidance assumes no income after October 31 from Edge properties for which the administrator has yet to complete business sale agreements with the new operators.
It also assumes no new acquisitions and no material change in current market or operating conditions.
The company added:
The upper end of the guidance range reflects the balance of announced transactions proceeding, including the transaction announced by Goodstart Early Learning (Goodstart) and the Administrator for the acquisition of 20 Edge early learning businesses operating from Arena owned centres. The proposed Goodstart transaction remains subject to confirmatory due diligence and final transaction documentation. All transactions remain subject to the transfer of service approvals and assignment of leases. Arena is continuing to undertake due diligence on the Edge portfolio transactions, including the proposed Goodstart acquisition, as it considers its consent to the assignment of Edge leases.
Separate to the Edge matters, Arena said it was continuing to improve the quality of its portfolio through the divestment of properties that offer lower prospects for long-term rental growth.
In the first quarter, the company sold three assets worth $16.6 million.
Arena added:
Arena currently has a fully funded development pipeline and will continue to consider the best use of the proceeds from its ongoing asset recycling program, having regard to progress on the resolution of the Edge portfolio, as well as Arena's balance sheet position, cost of capital and capital management program.
Rate rises taking their toll
Many ASX-listed real estate investment trusts are currently trading near their 12-month lows, with the recent interest rate increase pushing share prices lower.
Arena is valued at $1 billion.
