Arena REIT delivers 5.7% EPS growth as it navigates Edge tenant situation
In its FY2026 full year results presentation delivered on 21 August 2026, Arena REIT outlined a full-year result underpinned by contracted rental growth and a 100%-occupied portfolio, alongside the actively-managed default of tenant Edge Early Learning.
Management reported net operating profit of $79 million, up 8% on FY2025, with operating earnings per security of 19.60 cents (+5.7%) and a distribution per security of 19.25 cents (+5.5%). Total assets grew 8% to $2.0 billion, and the portfolio maintained a weighted average lease expiry (WALE) of 17.5 years.
The presentation framed a two-sided story: a core business that grew earnings and distributions, while management proactively addresses a defined tenant risk. Management also provided FY2027 distribution guidance calculated on prudent assumptions.
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FY2026 financial results: earnings and distributions grow
The result reflected several income drivers. Property income rose on the back of contracted annual rent increases, market rent reviews, early learning centre (ELC) development completions during the period, and the full-period effect of acquisitions and developments completed in FY2025.
Statutory net profit jumped 61.7% to $131.8 million. This uplift was primarily driven by higher investment property and derivative valuation gains compared to the prior corresponding period.
Operating expenses increased 21.6%, an increase the presentation attributed partly to non-recurring costs associated with management transition and CEO succession.
| Metric | FY2026 | FY2025 | Change % |
|---|---|---|---|
| Total operating income | $103.1m | $93.3m | +10.5% |
| Net operating profit | $79.1m | $73.1m | +8.3% |
| Statutory net profit | $131.8m | $81.5m | +61.7% |
| Operating EPS | 19.60c | 18.55c | +5.7% |
| Distribution per security (DPS) | 19.25c | 18.25c | +5.5% |
A conservative balance sheet
Management highlighted a balance sheet positioned to work through current conditions, detailing the following capital metrics:
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Gearing 24.5% (up 170bps, still low; LVR covenant maximum 50%, actual 29.8%)
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NAV per security $3.60 (+4%)
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Weighted average cost of debt 4.2%; weighted average facility term 4.0 years
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Hedge cover 100% (up from 69%)
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Undrawn debt capacity of $189 million against outstanding development commitments of $121 million
Low gearing and full hedging are presented as providing resilience through current market conditions.
The Edge Early Learning situation explained
The most material risk disclosed in the presentation relates to Edge Early Learning. Management set out the situation chronologically and emphasised that Arena’s legal rights remain in place.
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Edge leases represent 14% of Arena’s annual rental income.
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Rent was paid up to 31 July 2026; August rent was unpaid on 3 August 2026, and default notices were issued on 4 August 2026.
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Edge and its lender have up to 21 days to remedy the default.
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Arena holds approximately $4 million of bank guarantees and security deposits from Edge supporting its lease obligations.
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Arena has taken control of two newly developed Edge centres (one in Queensland and one in South Australia) that are completed and yet to open, and has signed term sheets for new 20-year leases to a leading national operator at equivalent rents over the initial lease term.
Management confirmed all of Arena’s legal rights currently remain in place, including security and cross default protection under the pooled bank guarantee arrangements. The Edge portfolio, comprising 31 properties, was independently revalued as at 30 June 2026 to $219 million, down $24.4 million (-10%) on the initial 30 June 2026 valuation, following the rent relief request and default notices.
Arena’s stated objectives
“Preserve long-term value for securityholders and minimise loss of rental income; where possible, work with Edge and its lender to support service continuity to families and other stakeholders; and, if required, replace Edge with new high-quality tenants that deliver safe and sustainable early education and care services to the community.”
Understanding early learning property as an investment
For investors less familiar with the sector, early learning centre real estate underpins a REIT like Arena because of its long, secure lease structures. Arena’s tenants operate on triple net leases. Combined with a long WALE and rent escalations linked to CPI or fixed amounts, this structure supports predictable, growing rental income. Arena’s portfolio spans 307 assets across 36 tenants, diversified 91% early learning and 9% healthcare by value.
Rent review protection is significant, with approximately 95% of FY2027 to FY2030 reviews contracted to CPI, higher-of CPI or an agreed fixed amount, or market. FY2026 delivered like-for-like rental growth of 4.0%, with 36 market rent reviews completed at an average increase of 7.6%.
Sector demand is supported by government policy, including the Three-Day Guarantee introduced in January 2026, the Worker Retention Payment extended to June 2028, and Child Care Subsidy funding that the government forecasts to grow around 8% per annum over the next four years.
Portfolio quality: actively curating the book
The presentation detailed Arena’s develop-to-own strategy and disciplined capital recycling across acquisitions, divestments and developments.
| Activity | Number | Value | Yield / Note |
|---|---|---|---|
| Acquisitions | 3 | $19.6m | 6.2% initial yield, 20-yr leases |
| Divestments | 11 | $53.5m | 5.3% yield, 8% premium to book |
| Completed developments | 11 | $87m | 6.0% net initial yield on cost |
| Development pipeline | 29 | $228m forecast | 6.0% yield; $121m capex outstanding |
Notably, no Edge centres are included in the pipeline. Management pointed to a develop-to-own track record of 99 projects delivered over 12 years, representing under 2.5% of new market supply over the period.
FY2027 outlook and guidance
Management set out its forward priorities and provided distribution guidance built on deliberately conservative assumptions.
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FY2027 distribution guidance: not less than 18.0 cents per security
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Guidance basis: a status quo assumption (no further acquisitions or disposals); no material change in current market or operating conditions; and no assumed Edge rental income from 1 August 2026 to year-end, net of the $4 million in liquid security assumed to be applied to outstanding rent.
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Guidance is to be updated as further information on Edge rental income becomes available during FY2027.
Management’s FY2027 priorities include:
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Working to resolve the Edge portfolio.
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Actively managing portfolio quality through selective divestments and new purpose-built investment.
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Progressing the development pipeline.
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Maintaining a strong balance sheet with low gearing and a high level of hedging.
Because the guidance already excludes Edge income from 1 August 2026, it reflects a conservative floor. The presentation described this approach as prudent due to the range of potential outcomes relating to the Edge Portfolio which at this point are uncertain, with guidance to be updated as further information becomes available during FY2027.
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