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Real estate investment trust Arena (ASX: ARF) has announced plans to raise up to $140 million to fund the acquisition and development of 10 early learning centres (ELCs), raising funds at a slight discount while forecasting 4.9 per cent distribution growth for shareholders in FY25.
The bulk of the capital raise will come from a $120 million institutional placement at an issue price of $3.78 per security, which is fully underwritten by joint lead managers Macquarie Capital and Jefferies. This will be followed up by a share purchase plan (SPP) aiming for up to $20 million.
The $3.78 price represents a 4.5 per cent discount to the last trading price for ARF shares, which have risen by around 20 per cent since the end of February.
Today's announcement comes as Arena has exchanged contracts, entered heads of agreement or is in exclusive due diligence to acquire and develop projects with a total investment of $92 million. These include six existing ELC properties for a total investment of $58 million, and four ELC developments with total anticipated project investment of $34 million.
This adds to 14 acquisitions and the completion of eight ELC development projects in FY24, and a forecast development pipeline cost pre-FY25 of $101 million.
The surplus generated from the raise will be put towards pipeline growth and executing future opportunities.
Arena notes the six properties to be acquired are in NSW and operated under the one brand owned by existing tenant partner Affinity Education Group, which has a strong record in operating early childcare education and care.
Meanwhile, the four new ELC projects will be operated by existing tenant partner Aspire Early Learning.
The trust claims the acquisitions are supported by strong social and macroeconomic drivers, including an increase in the maximum childcare subsidy (CCS) rate to 90 per cent for the first child in care from July 2023, and a maximum CCS of 95 per cent for any further children in care.
Arena believes the financial impact of the acquisitions and institutional placement will be earnings accretive.
"Arena has maintained capital management discipline through the cycle with consistent hedging programs, extension of facility term and sustained capacity to deploy capital into growth opportunities consistent with strategy," says chief financial officer Gareth Winter.
The company has released its FY25 distribution guidance of 18.25 cents per security, representing 4.9 per cent growth on FY24.
"Strong macroeconomic drivers continue to support growth in the demand for essential community services across Australia," says Arena’s managing director Rob de Vos.
"These themes, combined with Arena’s disciplined origination, capital management and asset management expertise have positioned the business well to sustainably deliver on its purpose and investment objective of delivering predictable distributions to securityholders with the prospect for growth."
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