Arena REIT builds disability housing portfolio

As well, Arena has forged into the emerging asset class of disability housing with the acquisition of three facilities in Adelaide for $23.95 million, in a transaction the listed property trust first revealed in February.

The $760 million trust – it is now led by former property head Rob de Vos following the departure of its long-serving managing director Bryce Mitchelson earlier this year – went into a trading halt as an institutional placement at $2.67 was executed.

The placement was fully underwritten by Morgan Stanley with Evans Dixon advising on the transaction.

The offer price reflected a 4.3 per cent discount to the last close and a 2.4 per cent discount to the five-day volume weighted average price.

The property trust has given distribution guidance for fiscal 2020 of 14.3¢ per security, which represents a distribution yield of 5.4 per cent on the placement offer price.

“Improvement in the operating environment for our early learning tenant partners is providing new opportunities for disciplined investment,” Mr de Vos said.

“Today’s equity raising provides capacity for additional investment in appropriate social infrastructure properties, consistent with our investment strategy.”

Macquarie analysts described the acquisitions as consistent with existing group strategy and the pricing – on a 6.5 per cent cap rate – as in line with Arena REIT’s current portfolio cap rate.

The prospect for a glut of new childcare centres has been a potential risk for listed landlords including Arena and the $1 billion Charter Hall Education Trust. However, fresh supply growth slowed in the final quarter of calendar year 2018 at the same time as reforms to federal funding in the sector fuelled demand.

In its first play in the disability housing sector, Arena – so far focused mostly on childcare centres and some healthcare real estate – has bought three properties from a private investor and leased on a long-term basis to SACARE, a provider of disability care and rehabilitation services in South Australia.

The three facilities – in Salisbury, Kingswood and North Adelaide – will cater for 35 clients in total.

Federal support for the growing sector comes through the Specialist Disability Accommodation funding instrument. When the scheme is fully expanded, annual funding is expected to hit $700 million per year.

While a small exposure for Arena, the move is a significant vote of confidence in the nascent sector, which is attracting increasing attention from institutional investors.

In what is being billed as potentially a $5 billion housing asset class, the emerging sector is backed by National Disability Insurance Scheme funding for the development of specialised accommodation for people with disabilities.