Arena REIT (ASX: ARF)

ARF Details

Continuous Portfolio Expansion: In a recent update, Arena announced a distribution for the December quarter of 2017 of 3.20 cents per stapled security, and this is in line with Arena’s previously announced FY18 distribution guidance of 12.8 cents per security. Its Dividend Reinvestment Plan operates in respect of its distribution and all the shareholders who will be participating in this DRP Plan will be issued new securities at a 1.5% discount to the 15-day volume weighted average trading price during the Pricing Period. There are 7 new projects which are in pipeline and the group expects to spend approximately $44m. ARF stock has been up 24.8% year to date (as at December 27, 2017) and has recently released a revaluation uplift and development update. Arena has been growing its distribution and currently has a yield of 5.6%. ARF has been adding properties and this has been helping it to expand its portfolio. Arena regularly achieves rental increases from its tenants, and in 2017, achieved an LFL (like for like) rental growth of 4.3%; and has aimed of investing in growing industries. However, there are certain risks in areas with oversupply of office space and this may impact the performance to some extent.
 
 
 

Delivering on Investment Objective (Source: Company Reports)
 
As per the latest revaluation uplift and development update, ARF expects net revaluation uplift of $22.2m in portfolio value as at 31 December 2017 (unaudited), reflecting growth of 3.4% since 30 June 2017 and equivalent to $0.08 in its Net Asset Value (NAV) per security ($1.84 at 30 June 2017). The expected completion of 11 Early Learning Centre (ELC) development projects for a total cost of $68m at an average initial yield on cost of 6.8% has also been highlighted. This has been backed by an increase in net passing rents and improved valuation yields.
Looking at the financial performance, Arena’s Net Operating Profit was $28.7 m, which is up by 12% on prior year which was majorly because of growing rental income from annual rent reviews and new income from four developments which were completed last year. Arena’s total assets increased to $621.3 m and its Net Asset Value per security was $1.84 which was up by 19% on prior year. It is expected that it will maintain the same distribution guidance of 2017 in 2018 that is 12.8 cents per security.
 

Projects Update (Source: Company Reports)
 
Overall, ARF has performed well but since last one month there has been a dip of 9.6% in share prices. Considering the catalysts already factored in, we recommend to “Sell” the stock at the current price of $2.26


ARF Daily Chart (Source: Thomson Reuters)

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