Key Highlights

  • Edge Early Learning leased 31 properties and accounted for 14% of annual rental income at 30 June 2026.
  • FY26 operating earnings per security were 19.60 cents, up 5.7%, and the distribution was 19.25 cents, up 5.5%.
  • FY27 guidance is a distribution of not less than 18.0 cents per security and assumes no Edge income from 1 August 2026.
  • An independent valuation of the Edge portfolio cut its value by A$24.4 million, or 10%.

Why has one tenant become the central question for Arena REIT (ASX:ARF)? Because Edge Early Learning, which leased 31 of Arena's properties and accounted for 14% of annual rental income at 30 June 2026, stopped paying rent after July and has since entered administration. Arena's FY26 results, released on 21 August 2026 after a postponement, show a portfolio that grew in value and income, alongside guidance that assumes no income from the Edge portfolio from 1 August 2026.

The FY26 numbers

For the year to 30 June 2026, Arena reported operating earnings per security of 19.60 cents, up 5.7%, and a distribution of 19.25 cents per security, up 5.5%. Net operating profit, which is the distributable income measure, was A$79.1 million, up 8%. Statutory net profit was A$132 million, up 62%, largely because property revaluations count towards the statutory figure.

Net asset value per security was A$3.60 at 30 June 2026, up 4% from a year earlier. The document reviewed does not report net tangible assets.

What Arena owns and how it earns

Arena is a real estate investment trust that owns social infrastructure, chiefly childcare and healthcare properties. At 30 June 2026 it held 307 properties valued at A$1,964.0 million. Based on the valuation table, about A$1,792.5 million, or roughly 91%, sat in early learning centres, including those under development, and A$171.6 million, or roughly 9%, in healthcare. These percentages are derived from the table and not stated by the company.

Revenue is rent from long leases. The portfolio had a weighted average lease expiry of 17.5 years (9.9 years for healthcare) and 100% occupancy, with a weighted average passing yield of 5.56%. Average like-for-like rent growth was 4.0%. Annual revaluations added A$47.4 million, or 2.7%.

Arena also develops new centres, then holds them as investments. It completed 11 early learning projects at a total cost of A$87 million in FY26, at a weighted average net initial yield of 6.0%, and has 29 projects in the pipeline with a forecast cost of A$228 million, also at a 6.0% yield. Six are conditionally contracted. Committed capital expenditure of A$121 million is funded within existing facilities.

The Edge exposure in detail

Edge's 31 properties represented 14% of rental income. Rent was paid up to 31 July 2026. When August rent was not paid, Arena issued notices of default giving up to 21 days to remedy. It holds about A$4 million of bank guarantees and security deposits.

An independent valuation of the Edge portfolio cut its value by A$24.4 million, or 10%, against the initial 30 June 2026 valuation. Arena also took control of two completed but unopened centres, one in Queensland and one in South Australia, and has signed term sheets for new 20-year leases with a leading national operator at equivalent rents.

On 7 October 2026 Arena said the administrator of Edge had entered a conditional heads of agreement with Goodstart Early Learning to acquire 31 Edge centre businesses, subject to due diligence and final agreement. Arena owns 27 Edge-occupied centres, and the proposed deal covers services at 20 of them. The other seven are among 33 centres the administrator is still trying to sell. Arena said it is still receiving rent on all 27 and is considering whether to consent to the lease assignments.

Guidance and balance sheet

FY27 guidance is for a distribution of not less than 18.0 cents per security. That is below the 19.25 cents paid for FY26, a reduction of about 6.5% on the minimum. The company said guidance assumes no acquisitions or disposals, no material change in market conditions and no income from the Edge portfolio from 1 August 2026, apart from the A$4 million security applied against outstanding rent.

Because the 7 October update said rent continues on all 27 centres, actual income may differ from the guidance assumption. The counts also differ, with 31 Edge properties cited at the results and 27 Edge-occupied centres in October, and the announcements reviewed do not explain the gap. These are observations from the two announcements, not forecasts, and the company has not updated its guidance in them.

The FY26 distribution of 19.25 cents compares with operating earnings of 19.60 cents per security, a payout of about 98% on this simple calculation. That is typical of a REIT that distributes most of its income, but it leaves limited buffer if earnings fall.

Gearing was 24.5%, up from 22.8%, with borrowings of A$511 million against total assets of about A$2.0 billion. The debt facility was increased to A$700 million in February 2026 with a weighted average term of 4.0 years. The cost of debt was 4.2% and hedge cover was 100%.

Risks and things to monitor

Several matters are open. Whether Goodstart and any other operators take over the leases, and on what terms, will determine how much of the Edge rent is replaced. Arena's consent to lease assignments, the remaining seven centres and any further valuation changes will also matter.

Reported occupancy of 100% is as at 30 June 2026, before the Edge rent default. Further items to watch include the effect of the revaluation on gearing, the pace of development completions, the A$4 million security relative to unpaid rent, and whether guidance is updated once outcomes are clearer. Arena's next scheduled formal financial update would be its first-half FY27 result, covering the six months to 31 December 2026, although ASX announcements may come sooner.