Arena REIT (ASX:ARF) reported a positive start to FY26, with management citing earnings growth, valuation gains and an expanded development pipeline as key drivers of its first-half performance. Managing Director and CEO Justin Bailey said contracted annual escalations and market rent reviews, alongside acquisitions and developments completed in FY25 and the first half of FY26, underpinned the result.
Half-year financial results
Arena reported net operating profit of AUD 39 million, up 9% on the prior corresponding period, and statutory net profit of AUD 110 million. Operating earnings per security were AUD 0.097, up 5.4%, while net asset value per security increased 5.2% to AUD 3.64. Total assets rose to AUD 1.98 billion, up 7% from June 2025.
Winter noted statutory profit was supported by AUD 61 million of investment property revaluations in the period (versus AUD 7 million in the prior period), along with an AUD 11 million positive revaluation on the hedge book. Arena also recorded AUD 1.7 million of capitalised interest on its development book.
Distribution guidance reaffirmed
Bailey reaffirmed full-year distribution guidance of AUD 0.1925 per security, representing growth of 5.5% on FY25. Arena paid first-half distributions of AUD 0.09625 per security, consistent with guidance. Winter said the FY26 payout ratio is expected to be consistent with recent years (FY25 was 98.4%).
Portfolio activity, valuation uplift and development pipeline
Head of Investment and Portfolio Carla Hayes said Arena’s portfolio at 31 December comprised 274 early learning centres, 18 development sites and 10 healthcare properties, valued at AUD 1.9 billion. The portfolio was fully occupied with a weighted average lease expiry (WALE) of 17.9 years. Hayes highlighted national and tenant diversification, with 35 tenant partners and no single tenant contributing more than 20% of income.
During the half, Arena:
- Divested six properties for AUD 33.9 million, at an average 10.4% premium to book value (management said all were on-market competitive processes).
- Acquired three newly completed properties for AUD 19.6 million at a weighted average initial yield of 6.1%.
- Completed eight developments at a total cost of AUD 65 million, with a weighted average initial yield of 6% and 20-year lease terms.
Hayes said the portfolio recorded a AUD 61.2 million valuation uplift (up 3.3%), driven primarily by growth in passing and market rents and yield compression on early learning assets. Arena’s weighted average passing yield firmed by 8 basis points to 5.39%, while Hayes cited 9 basis points of yield compression on early learning assets specifically. Bailey said tightening yields in the early learning market, combined with higher passing and market rents, supported the valuation uplift and reflected an active transaction market with “deep liquidity.”
Arena replenished its develop-to-own pipeline to 29 projects, with a total forecast cost of AUD 225 million. Management said the anticipated net initial yield on all costs is 6%, with completion expected over the next two years. Bailey described the company’s typical development CapEx run-rate as about AUD 100 million per year, while noting the pipeline provides visibility on investment for the period ahead.
Balance sheet, refinancing and hedging
Arena ended the half with gearing of 23.2% and hedge cover of 93% of borrowings. Winter said the company completed a debt refinancing after period end, increasing facilities by AUD 100 million and extending maturities to a weighted average term of 4.5 years, with no expiry before 31 May 2029. He added that margins were reduced across maturities, with a weighted-average step-down of 6 basis points, bringing weighted average margins to about 105 basis points.
Following the refinance, Winter said immediately available liquidity was AUD 225 million, which he said fully funds development commitments of AUD 164 million. The all-in weighted average cost of debt was 4.2% for the half; Winter said management expected a small increase in the second half (around 10 basis points) and noted forward swap rates rising by about 20 basis points over FY27 based on the company’s chart and assumptions.
On hedging, management said it increased cover after dips in the curve during 2025, including forward hedging to support expected debt draws tied to the development pipeline. Winter reiterated a typical hedge range of 70% to 80%, noting Arena increased cover given market conditions.
Operating environment, rent reviews and tenant metrics
Hayes said like-for-like rental growth of 3.6% in the half was supported by market reviews averaging 7.6% across 12 completed market rent reviews. She said 28 market reviews are expected in the second half of FY26, and that 36% of portfolio income is subject to market review across FY26 to FY29. In the Q&A, management added that nine of the 28 second-half market rent reviews are uncapped, with the remainder capped, and noted that among the 12 completed in the first half, one uncapped review increased 7.7% while the remainder were capped at 7.5%.
Management discussed tenant conditions amid industry commentary about operator pressures. Bailey said Arena observed “modest easing” in occupancy comparing September 2025 to September 2024, but cited 6.2% growth in daily fees over the same period. He said this contributed to tenant rent affordability metrics improving, with net rent-to-gross operator revenue at 9.7%, below long-term averages. Bailey said Arena also has visibility at the centre level and referenced rent cover “upwards of 3 times” in recent years.
Hayes said supply growth remained measured, with net new early learning supply of 3.2% in the 12 months to September 2025, in line with the five-year average. She also pointed to reforms including the removal of the activity test and a three-day guarantee from January 2026 as supportive for demand. On regulation and compliance, Bailey said reforms were being implemented progressively, adding that operators were working through requirements and that some additional resourcing had been required at corporate levels, though he said Arena had not seen significant changes in centre-level cost bases in the data reviewed.
On strategic positioning, Bailey said Arena remains focused primarily on develop-to-own early learning opportunities, while continuing to monitor healthcare and other social infrastructure within its mandate. He added the company is not looking to buy major tertiary/private hospitals in the near term, and emphasized that any expansion outside early learning would need to meet criteria including long WALE, strong covenant quality and genuine triple-net lease structures.
About Arena REIT (ASX:ARF)
Arena REIT is an ASX200 listed property group that develops, owns and manages social infrastructure properties across Australia. Our current portfolio of social infrastructure properties is leased to a diversified tenant base in the growing early learning and healthcare sectors.
