Is This The ASX’s Best A-REIT?

ASX-listed Arena REIT No 1 (ASX: ARF) reported its 2019 financial year (FY19) report to investors today and I’m asking if it’s the ASX’s best REIT?

Arena is a real estate investment trust (REIT) in the ASX 300 that owns, manages and develops social infrastructure such as childcare centres and healthcare properties. Its property portfolio is leased to a mixed group of tenants.

Arena REIT reported that its (distributable) net operating profit grew by 9% over the year to $38 million. However, statutory net profit fell 8% mainly because of the revaluation of interest rate hedges.

Arena’s total assets grew by 14% to $825 million and net assets per share (NAV) increased by 7% to $2.10. Pleasingly, gearing, the level of borrowing, decreased to 23% from 25% a year ago.

During the year the REIT achieved a like for like rent increase of 3.6% because of 39 market rent reviews at an average increase of 9.4%.

Arena also reported that its healthcare portfolio leases with Healius Ltd (ASX: HLS) was extended from four years to 14.6 years. Pleasingly, Arena maintained its occupancy at 100% and the portfolio’s weighted average lease expiry (WALE) grew to 14.1 years from 12.9 years at June 2018.

During the year Arena notced up its distribution by around 5% to 13.5 cents per share and in FY20 management have guided that the distribution will grow by a further 6% to 14.3 cents per share reflecting the like-for-like rental growth, acquisitions and its development pipeline.

Is It Time To Buy The Arena REIT?

I have been impressed by the Arena REIT over the years because it has managed to steadily increase its operating earnings and distribution to investors at a high single-digit pace.

With the REIT predicting further growth of the distribution, it’s certainly a fairly attractive income option with a FY20 distribution yield of 5%. So I certainly think it’s one of the better REIT income options, but it is valued at 35% premium to its underlying June 2019 value.

Therefore, I think there could be better options for dividends, such as the ETF in the free report below.

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

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