I think Arena REIT No 1 (ASX: ARF) is a top dividend share and it just increased its distribution by 6% in its half-year result to 31 December 2019.
What is Arena REIT No 1?
It's a real estate investment trust (REIT) which owns a large portfolio of social infrastructure properties which are predominately early learning properties as well as a few healthcare properties, which includes a few specialist disability accommodation properties. It now has 223 early learning centre (ELC) properties and 10 healthcare properties.
What are the profit numbers that Arena REIT reported?
As I already mentioned, Arena REIT said its distributions were up 6% on the prior corresponding period to 7.15 cents per security, supported by operating earnings per share (EPS) growth of 6% to 7.17 cents per security.
Statutory net profit rose by 24% to $42.2 million after higher property valuation uplift, profits realised on the sale of divested properties and positive revaluation of interest rate hedges.
Arena's total assets increased by 8% to $890.4 million as a result of acquisitions, development capital expenditure and positive portfolio revaluation. The valuation uplift contributed to a 4% increase in the net asset value (NAV) per share to $2.18 at 31 December 2019.
Portfolio highlights
Arena REIT achieved an average like for like rent review increase of 3.1%, which was pleasing and comfortably above inflation.
It maintained its 100% occupancy rate which means every property had a tenant and was paying rent.
At the end of the half-year it had a weighted average lease expiry (WALE) of 14.1 years, which is one of the highest in the REIT sector.
It also informed investors that it has commenced a renewable energy program to invest in sustainability initiatives, including a multi-site solar installation project which is expected to be completed in FY20.
During the period it acquired three operating ELC properties with a net initial yield on cost of 6.2%, each with a 20-year lease. One ELC development was completed at a net initial yield on total cost of 6.5% on a 20-year lease. Arena REIT said it acquired 11 new ELC development sites.
It continues to recycle its portfolio – five ELC properties were sold at an average premium of 11.6% to the book value.
After the reporting period, Arena REIT said it acquired an $11 million multi-disciplinary healthcare centre co-located with the Kalamunda Hospital in Perth, leased to Mead Medical. It has a triple net lease with a 6.5% initial yield with a 10-year WALE.
Gearing was 23.2% – low for the REIT sector – with a weighted average cost of debt of 3.55%, which was an improvement.
Childcare update
The REIT disclosed that the ELC sector remains strong with a record 781,830 children attending day long care at 30 September 2019, a 4% increase over the previous 12 months and 12.5% increase since the introduction of the child care subsidy.
Is Arena REIT a buy?
It reaffirmed its distribution guidance for the year of 14.3 cents per share, an increase of 6% over FY19. That means it's trading with a FY20 distribution yield of 4.5% after a 28% increase of the share price since the start of 2019.
The REIT has grown its distribution each year since it started paying one in 2013. I think it will generate more income growth than banks, but it's now at a 45% premium to its underlying value (NAV), which is already higher from property valuation uplifts. I think it's a great REIT, but I'd only buy Arena REIT today if income is your only focus in the medium-term.
