ARENA REIT. - Proxy Solicitation & Information Statement 2013

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Arena REIT ARSN 106 891 641

Notice of Meeting and Explanatory Memorandum

This is an important document and requires your immediate attention. Please read this document in full and consult your professional adviser if you have any queries.

Date of meeting: Monday, 9 December 2013 Time of meeting: 12.00pm (AEDT) Venue: Spring Street Conference Centre, Training rooms 7 & 8, 1 Spring Street, Melbourne, Victoria 3000

THE ARENA BOARD UNANIMOUSLY RECOMMENDS INVESTORS The Arena Board considers the Stapling Proposal is in the best interests of ARF VOTE IN FAVOUR OF BOTH RESOLUTIONSInvestors (in the absence of a superior proposal) and unanimously recommends ARF Investors vote in favour of BOTH Resolutions.

You should read this Notice of Meeting and Explanatory Memorandum in full together with the PDS before deciding whether or not to vote in favour of the Resolutions.

The Independent Expert has concluded that the Stapling Proposal is in the best interests of, and fair and reasonable to, ARF Investors.

About this Document

This Document comprises a Notice of Meeting and Explanatory Memorandum , which contains detailed information about the Stapling Proposal , the impacts it will have on ARF Investors and the Resolutions to be voted on.

What should you do?

The Stapling Proposal requires the approval of ARF Investors. You should:

1. Read

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Read this Notice of Meeting, Explanatory Memorandum and the accompanying PDS.

Investors should read the PDS carefully before making any decision about how to vote. All New Units issued to implement the Stapling Proposal shall be taken to be issued to ARF Investors pursuant to, and on the basis they have taken into account the contents of, the PDS.

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2. Vote

ARF Investors wishing to vote on the Resolutions must

either attend the Meeting or return their proxy form by 12.00pm AEDT on Saturday, 7 December 2013.

For further information

If you have further enquiries please contact the toll free Arena Information Line on 1800 008 494 between 8:30 am and 5:00 pm (AEDT) Monday to Friday (excluding public holidays).

If you have queries or uncertainties relating to any matter you should consult your stockbroker, accountant or other professional adviser.

Any material amendment to the Stapling Proposal will be announced to the market through ASX and posted on the Arena website at www.arenainvest.com.

Important Notices

What is this Document?

On 1 November 2013, the Board of Arena Investment Management Limited (Arena) announced a proposal for the stapling of Arena REIT (ARF) and Sydney HealthCare Trust (SHCT), an unlisted property fund, to create a stapled ASX listed A-REIT (Stapled Group). It is proposed that the Stapled Group will be listed on ASX under the existing ASX code ‘ARF’.

This Document is a Notice of Meeting and Explanatory Memorandum dated 1 November 2013 and is issued by Arena Investment Management Limited ACN 077 235 879 in its capacity as responsible entity of Arena REIT ARSN 106 891 641.

This Document provides information for ARF Investors to consider and vote on the Resolutions to approve the Stapling Proposal (Resolution 1 – Stapling Resolution) and the proposed changes to the ARF Constitution described in this Document (Resolution 2 – General Constitutional Changes) at the Meeting to be held at 12.00pm(AEDT) on Monday, 9 December 2013 at Spring Street Conference Centre, Training rooms 7 & 8, 1 Spring Street, Melbourne, Victoria 3000.

This Document should be read with the Product Disclosure Statement dated 1 November 2013 relating to the Stapled Group (PDS) that accompanied this Document. The PDS provides a detailed overview of ARF and SHCT and the Stapled Group, if the Stapling Proposal is approved and implemented.

ARF Investors as at the Meeting Record Date will have the right to vote on the Resolutions, subject to the voting exclusions set out in the Notice of Meeting.

No investment advice – voting decisions and investment

If the Stapling Proposal is implemented, an investment in the Stapled Group will be subject to investment and other risks, including loss of income and the principal invested. Arena does not provide any guarantee or assurance as to the performance of ARF, SHCT or the Stapled Group or the repayment of capital.

The information contained in this Document and the PDS is not financial product advice and does not take into account the investment objectives, tax position, financial situation and particular needs of ARF Investors. Accordingly, before making any investment you should read this Document, the PDS and any supplementary or replacement PDS in full. It is recommended that before a decision in relation to the Resolutions is made ARF Investors should consult their financial or other professional adviser.

Responsibility statement

Arena takes full responsibility for the contents of this Document, subject to the limitations set out below.

PwC has prepared the tax report included in Section 4 (Tax Report). Neither Arena, nor any of its Directors, representatives, officers, employees or advisers assumes any of PwC's responsibility for the accuracy of the Tax Report, except to the extent that those parties are responsible for the information provided to PwC in the preparation of the Tax Report. PwC does not assume any responsibility for the accuracy or completeness of any other part of this Document.'.

Moore Stephens has prepared the Independent Expert’s Report set out in Section 5. Moore Stephens takes responsibility for that report. Neither Arena, nor any of its Directors, representatives, officers, employees or advisers assumes any of the Independent Expert’s responsibility for the accuracy or completeness of the information contained in the Independent Expert’s Report, except to the extent that those parties are responsible for the factual information provided to Moore Stephens in the preparation of the Independent Expert’s Report.

Forward looking statements

This Document contains forward-looking statements in relation to the financial performance and strategy of ARF and the Stapled Group. Those forward-looking statements are made only as at the date of this Document.

Any forward-looking statements involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the control of Arena concerning future results and events at the date of this Document and are not and cannot be guarantees of future performance. The actual results or outcomes for ARF, SHCT and/or the Stapled Group may differ materially from the anticipated results, performance or achievements expressed, projected or implied by these forward-looking statements or forecasts.

Subject to any obligations under the Corporations Act or the Listing Rules, Arena and the Arena Board disclaim any obligation or undertaking to disseminate after the date of this Document any update or revisions to any forward-looking statements to reflect any change in expectations in relation to any of those statements or any change in circumstances, events or conditions on which any of those statements are based.

The risk factors and disadvantages in Section 2.4 of this Document and those described in Section 5 of the PDS or other factors (which could be unknown, unpredictable or result from a variation in the assumptions underlying any forecasts), could cause actual results to differ materially from those expressed, implied or projected in any forward-looking statements or forecasts.

None of Arena, or any of its representatives, officers, employees or

advisers (including any employee of Citrus or any person named in this Document or any person involved in the preparation of it) gives any representation, assurance or guarantee (express or implied) that the results, performance or achievements expressed or implied by the forwardlooking statements in this Document will actually occur.

Electronic version of this Document

This Document and the PDS may also be viewed online at www.arenainvest.com.au. If you access the electronic version of this Document or the PDS you should ensure that you download both documents in their entirety.

Paper copies of this Document and the PDS can be obtained free of charge by contacting Arena.

Notice to Foreign Investors

This Document and the PDS do not in any way constitute an offer of securities or invitation in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation.

If the Stapling Proposal is implemented, Foreign Investors will not receive Stapled Securities (due to legal restrictions), but will instead have the Stapled Securities to which they would otherwise be entitled sold through the Sale Facility (described in Section 7.1) in such manner and at such price and on such terms as the Sale Nominee determines in good faith (and at the risk of Foreign Investors). The Stapled Securities to be sold by the Sale Nominee will be sold on market and there can be no assurance as to the price at which Stapled Securities will be sold. Sale proceeds will be paid by electronic funds transfer (if details are held by the Registry) or by cheque.

Participation in the Sale Facility is not available to ARF Investors (other than Foreign Investors).

Read the PDS

This Document contains information about the Stapling Proposal, which if approved and implemented, will result in ARF Investors holding Stapled Securities. Stapled Securities will be issued by Arena in its capacity as responsible entity of both ARF and SHCT. A PDS in relation to the Stapled Securities accompanies this Document and is also available at the Arena website at www.arenainvest.com.au. You should also consider the PDS in deciding whether to vote in favour of the Stapling Proposal.

Glossary

Unless otherwise defined in this Document, terms and abbreviations used in this Document have defined meanings which are set out in the Glossary in Section 9.

This Document is dated 1 November 2013.

Arena REIT Notice of Meeting and Explanatory Memorandum i

Important Notices	i
1. Overview of the Stapling Proposal	2
2. Resolution 1: Stapling Proposal	8
3. Financial Information	19
4. Tax information for ARF Investors	24
5. Independent Expert’s Report	29
6. Resolution 2: General Constitutional Changes	106
7. Additional information	107
8. Notice of Meeting of ARF Investors	109
9. Glossary	112

1 Arena REIT Notice of Meeting and Explanatory Memorandum

1 Overview of the Stapling Proposal

1.1 Key information

		For more
Topic	Details	information
What is the	The Stapling Proposal (if approved and implemented) involves the issue of	Sections 2 and
Stapling	New Units and the stapling of ARF Units with SHCT Units such that ARF and	4 of this
Proposal?	SHCT will operate as a combined group listed on ASX under the code ‘ARF’	Document and
	(Stapled Group). Each ARF Investor and SHCT Investor will then be referred to as a “Stapled Securityholder” and may only trade both ARF Units and	Sections 5 and 11 of the PDS
	SHCT Units together.
	The Stapling Proposal (if approved and implemented) also provides a
	Redemption Offer under which SHCT Investors can elect to redeem part or
	all of their investment for cash at a price of $1.15 per entitlement to a Stapled
	Security. ARF Investors who are not also SHCT Investors are not entitled to
	participate in the Redemption Offer.
	The Stapling Proposal requires the approval of ARF Investors, as well as
	SHCT Investors, who will consider and vote on the Stapling Proposal in
	separate meetings.
	Details of the issue of Stapled Securities and important information
	regarding the Stapled Group are detailed in the PDS. In particular, you
	should pay careful consideration to the risk factors and the tax implications
	outlined in Sections 2.4 and 4 of this Document, and Sections 5 and 11 of the
	PDS, as they relate to your personal investment objectives, financial
	circumstances and needs.
What is the	Following implementation of the Stapling Proposal, ARF and SHCT will	Sections 0, 2.3
commercial	effectively operate as one combined group.	and 3
outcome of the Stapling	For ARF Investors, the Stapling Proposal will result in:
Proposal?	 exposure to SHCT’s Healthcare Portfolio of 6 multi-disciplinary medical
	centres located in and around Sydney leased to Primary Health Care with
	a WALE of 9.0 years and a Passing Yield of 8.9%;1
	 an expected increase in ARF’s FY14 forecast distributions from 8.2 cents
	to 8.45 cents per Stapled Security. On a pro forma annualised basis2, the
	FY14 net profit available for distribution to Stapled Securityholders is
	forecast to be 8.8 cents per Stapled Security. The actual increase is
	dependent on the number of SHCT Investors who accept the
	Redemption Offer;
	 the Stapled Group’s total Carrying Value will be $289.6 million compared
	to ARF’s Carrying Value (on a stand-alone basis) of $234.9 million;3and
	 the Stapled Group’s Gearing Ratio will be between 23% and 29%4
	(compared to ARF’s Gearing Ratio of 10.6% as at 30 June 2013) which is
	below the target Gearing Ratio of between 35% and 45%. If the Stapling
	Proposal is approved and implemented, the facility limit under ARF’s
	Debt Facility will increase to $140 million (compared to ARF’s current
	facility limit of $110 million).

1 Both figures as at 30 June 2013.

2 Means the annualised pro forma FY14 forecast for the Stapled Group assuming the Stapled Group had been in existence for all of FY14, as further detailed in section 3.4.

3 Both figures based as at 30 June 2013.

4 The exact percentage within this range depends on the number of SHCT Investors who accept the Redemption Offer.

Arena REIT Notice of Meeting and Explanatory Memorandum 2

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For more
Topic Details information
How will the The current structure of ARF and SHCT is as follows: Section 2
group structure
change as a
result of the
Stapling
Proposal?
As shown below, if the Stapling Proposal is implemented:
 the Stapled Group will consist of both ARF and SHCT, each managed by
Arena as the responsible entity, with each having common investors;
 Arena will change the name of ARF to ‘Arena REIT No. 1’ and the name
of SHCT to ‘Arena REIT No. 2’; and
 the Stapled Group will be known as ‘Arena REIT’ and trade under ASX
code: ‘ARF’.
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What will be the As described in detail in Section 4 of the PDS, the Stapled Group will bring Section 2 key portfolio together two complementary portfolios (the Childcare Portfolio owned by features of the ARF and the Healthcare Portfolio owned by SHCT) resulting in a Combined Stapling Portfolio with the following key features:[5] Proposal?  a Combined Portfolio with a Carrying Value of $289.6 million, made up of:

173 childcare centres and 4 childcare development sites, located throughout Australia; and

5 All figures as at 30 June 2013.

3 Arena REIT Notice of Meeting and Explanatory Memorandum

			For more
Topic	Details		information
		 6 medical centres located in and around Sydney;
		greater sector diversification with 81.1% exposure to the childcare sector
		and 18.9% exposure to the healthcare sector;6
		greater tenancy diversification mix with exposure to Goodstart of 52.8%
		and exposure to Primary Health Care of 19%7;
		a WALE of 8.4 years; and
		a Passing Yield of 9.2%.
What are the key	Arena considers the main benefits of the Stapling Proposal to be:		Section 2.3
benefits of the Stapling		Significant portfolio diversification:8
Proposal?		 Introduces healthcare exposure– ARF Investors will have a 18.9%
		weighting to the healthcare sector and a 81.1% exposure to the
		childcare sector9;
		 Broadens tenancy base– the Combined Portfolio will have a 19%10
		exposure to a high quality operator in Primary Health Care which is a
		leading provider of medical services in Australia; and
		 Relatively long remaining lease term – a combined portfolio WALE
		of 8.4 years.
		An increase in ARF’s FY14 forecast distributions from 8.2 cents to 8.45
		cents per Stapled Security. On a pro forma annualised basis, the FY14
		net profit available for distribution to Stapled Securityholders is forecast
		to be 8.8 cents per Stapled Security.
		The Stapled Group’s total Carrying Value will be $289.6 million
		compared to ARF’s Carrying Value (on a stand-alone basis) of $234.9
		million.11
		All of the assets in the Healthcare Portfolio were purpose built between
		2000 and 2002 specifically for Primary Health Care.
		Under the terms of the leases, Primary Health Care is responsible for all
		operational and statutory outgoings including insurance, land tax (on a
		multiple holding basis) and repairs and maintenance (other than of a
		structural nature).
	Details of the basis of preparation of the Forecast and key assumptions and
	risks of the Forecasts are set out in Section 3 of this Document and Section 7
	of	the PDS.
What are the key	Arena considers the main disadvantages of the Stapling Proposal to be:		Sections 2.4, 3
disadvantages and risks of the Stapling Proposal?		as a result of funding the Redemption Offer, the Gearing Ratio will increase from 10.6% (for ARF as at 30 June 2013) to between 23% and 29% for the Stapled Group (noting that this remains below ARF’s target gearing ratio of between 35% and 45%). If the Stapling Proposal is	and Section 5 of the PDS
		approved and implemented, the facility limit under ARF’s Debt Facility
		will increase to $140 million (compared to ARF’s current facility limit of
		$110 million).
		as a result of fundingthe Redemption Offer and the costs of

6 Weighted by income.

7 Weighted by income.

8 All figures as at 30 June 2013.

9 Both figures reference by value.

10 Both figures reference by value.

11 Both figures as at 30 June 2013.

Arena REIT Notice of Meeting and Explanatory Memorandum 4

		For more
Topic	Details	information
	implementing the Stapling Proposal, the NTA per Stapled Security will
	be between 1.2% and 2.2%12less than the NTA per ARF Unit (on a stand-
	alone basis) as at 30 June 2013.
	Arena considers the key risks relating to an investment in the Stapled Group
	to be:
	 concentration risk;
	 tenant risk;
	 regulation and licensing risk;
	 government funding, policy risk and changes in law;
	 alternative use risk;
	 acquisitions and divestments risk; and
	 re-leasing and vacancy risk.
	These disadvantages and risks are further described in Section 2.4 of this
	Document and Section 5 of the PDS.
What did the	Arena commissioned Moore Stephens to prepare an Independent Expert’s	Section 5
Independent	Report to express an opinion as to whether the Stapling Proposal is in the
Expert say?	best interests of, and fair and reasonable to, ARF Investors.
	The Independent Expert has considered the merits of the Stapling Proposal,
	assessed the relative value of ARF and SHCT and identified the advantages
	and disadvantages that they consider relevant to an evaluation of whether
	the Stapling Proposal is fair and reasonable and in the best interests of ARF
	Investors.
	The Independent Expert has concluded that in their opinion:
	 ARF Investors will be better off if the Stapling Proposal is implemented
	than if it is not; and
	 The Stapling Proposal is in the best interest of, and is fair and
	reasonable to ARF Investors.
	The Independent Expert’s report is set out in its entirety in Section 5. The
	report includes a summary prepared by the Independent Expert setting out
	the background to the Stapling Proposal, the scope of their report, the basis
	of their evaluation and the summary of their opinion. ARF Investors should
	read the Independent Experts report in full before making their own
	determination on the merits of the Stapling Proposal.
What does the	The Arena Board considers the Stapling Proposal is in the best interests of	Section 2.6
Arena Board	ARF Investors (in the absence of a superior proposal) and unanimously
recommend?	recommends ARF Investors vote in favour of both Resolutions.
What is Resolution 1	Resolution 1 – Stapling Resolution	Section 2
(Stapling	ARF Investors will have the opportunity to vote on the Stapling Resolution to
Resolution)?	enable the necessary amendments to be made to the ARF Constitution in
	order to empower Arena to implement the Stapling Proposal.

12 The exact percentage within the range will depend on the number of SHCT Investors who accept the Redemption Offer.

5 Arena REIT Notice of Meeting and Explanatory Memorandum

		For more
Topic	Details	information
What other resolutions are	Resolution 2 – General Constitutional Changes Resolution	Section 6
ARF Investors	The General Constitutional Changes Resolution proposes to amend the ARF
being asked to	Constitution to include certain provisions which reflects the transition of ARF
approve?	from an unlisted entity to an ASX listed entity.
	If Resolution 1 (Stapling Resolution) is approved by ARF Investors, it will not
	be necessary at the Meeting to consider Resolution 2 (since the General
	Constitutional Changes are also incorporated as part of Resolution 1).
	However, if the Stapling Resolution is not approved, Arena considers that the
	General Constitutional Changes are nevertheless appropriate and in the best
	interests of ARF Investors.
What are the	There are 3 possible outcomes from the Meeting	Section 7
possible outcomes from	Outcome 1: Resolution 1 is approved
the Meeting?	If Resolution 1 is approved (and the corresponding resolution is also
	approved by SHCT Investors), Arena will implement the Transaction Steps as
	set out in Section 7.1 in order to give effect to the Stapling Proposal.
	Resolution 2 will have no effect, as the General Constitutional Changes will
	have been effected by the amendments approved pursuant to Resolution 1.
	Outcome 2: Resolution 1 is not approved or the corresponding resolution is
	not approved by SHCT Investors and Resolution 2 is approved
	The Stapling Proposal will not be implemented. The General Constitutional
	Changes will be made to the ARF Constitution.
	Outcome 3: Neither Resolution 1 nor Resolution 2 is approved
	The Stapling Proposal will not be implemented. No amendments will be
	made to the ARF Constitution. This means that the responsible entity of ARF
	will not be able to issue ARF Units at a price by reference to the ASX trading
	price of ARF Units.

Arena REIT Notice of Meeting and Explanatory Memorandum 6

1.2 Key dates

Key dates
Dispatch of Notices of Meeting and Explanatory Memoranda and PDS to ARF Investors and SHCT Investors	Friday, 15 November 2013
Closing date for Redemption Offer ARF Units trade on ASX ex-Interim Distribution	Wednesday, 4 December 2013
Last date for lodgement of proxy forms	Saturday, 7 December 2013
Meetings of ARF Investors and SHCT Investors	Monday, 9 December 2013

If the Stapling Proposal is approved by ARF Investors and SHCT Investors and all other conditions in connection with the Stapling Proposal are fulfilled.

conditions in connection with the Stapling Proposal are	fulfilled.
Last day of ASX trading of ARF Units	Tuesday, 10 December 2013
Admission of Stapled Group to official list of ASX Deferred settlement trading of Stapled Securities begins	Wednesday, 11 December 2013
Stapling Record Date
Last day for registration of transfers of existing ARF Units and	Tuesday, 17 December 2013
SHCT Units
Stapling Commencement Date
New SHCT Units and New ARF Units allotted
Stapled Securities redeemed pursuant to Redemption Offer	Wednesday, 18 December 2013
Issue of New ARF Units and New SHCT Units
Dispatch of holding statements for Stapled Securities
Stapled Securities commence trading on a normal (T+3) settlement basis	Thursday, 19 December 2013

The timetable above and all other indicative dates in this Document are indicative only. Unless otherwise specified, all times and dates refer to AEDT. Arena reserves the right to amend any or all of these dates and times subject to the Corporations Act, the Listing Rules and other applicable laws, or to withdraw the Stapling Proposal, without prior notice. Any amendment to the timetable will be announced to the market through ASX. The quotation and commencement of trading of the Stapled Securities is subject to confirmation from ASX.

7 Arena REIT Notice of Meeting and Explanatory Memorandum

2 Resolution 1: Stapling Proposal

Resolution 1 involves considering and, if thought fit, approving amendments to the ARF Constitution to empower Arena to implement the Stapling Proposal.

2.1 Stapling Proposal: Q&A

		For more
Question	Answer	information
What is the	The Stapling Proposal (if approved and implemented) involves stapling	Section 2
Stapling	ARF Units to SHCT Units and the admission of the Stapled Group to the
Proposal?	official list of ASX. In conjunction with the Stapling Proposal, SHCT
	Investors will be entitled to participate in the Redemption Offer.
	A Stapled Security will consist of one SHCT Unit and one ARF Unit stapled
	together.
What will ARF	If the Stapling Proposal is approved and implemented, ARF Investors will	Section 7.1
Investors	own Stapled Securities comprising ARF Units stapled to SHCT Units. The
receive if	number of Stapled Securities which will be held by ARF Investors following
the Stapling	the Stapling Commencement Date is determined by the Stapling Ratio.
Proposal is approved and implemented?	Under the Stapling Ratio, ARF Investors will hold one Stapled Security for every one ARF Unit they hold on the Stapling Record Date.
What is SHCT?	SHCT is an unlisted registered managed investment scheme which was	Section 0
	established in 2002 and owns a portfolio of 6 multi-disciplinary primary
	care medical centres located in and around Sydney valued at $54.7 million
	as at 30 June 2013 (Healthcare Portfolio).
	The Healthcare Portfolio is leased to Primary Health Care, a listed
	company in the S&P/ASX 100 Index with a market capitalisation of
	approximately $2.5 billion13.
What is the	When ARF listed on ASX in June 2013, the Arena Board set out an	Section 0
rationale for	objective to generate attractive and predictable distributions to investors
the Stapling	with earnings growth prospects over the medium to long term. The Arena
Proposal?	Board considers that this will be best achieved through broadening ARF’s
	investment strategy, looking beyond the childcare sector to
	complementary assets in the healthcare, education and government
	sectors and other sectors with attributes such as high credit quality
	tenants, relatively long term leases and/or assets with strategic importance
	for the tenant.
	The Arena Board believes that broadening the investment strategy will
	benefit ARF Investors in the longer term, by diversifying the underlying
	tenancy base and geographic spread and providing more growth options.
	Following its successful capital raising and ASX listing, ARF is now well
	positioned to pursue its investment strategy and the Stapling Proposal
	provides a compelling opportunity to further enhance the value of ARF by
	exposure to a portfolio of 6 multi-disciplinary primary care medical centres
	with a secure and highly reputable tenant.
	Further, the Stapling Proposal will diversify ARF’s key tenants and enhance
	both sector and geographical diversification.

13 As at 1 November 2013.

Arena REIT Notice of Meeting and Explanatory Memorandum 8

		For more
Question	Answer	information
What happens	If the Stapling Proposal is not approved by either ARF Investors or SHCT	Section 2.7
if the Stapling	Investors, the Stapling Proposal will not be implemented and ARF will
Proposal is not	continue to be listed on ASX in its current form. ARF Investors will vote on
approved?	the General Constitutional Amendment.
Does Arena	Arena Property Fund (APF), of which Arena is also the responsible entity,	Section 7.4
(or its related	holds 12,672,684 SHCT Units (approximately 46.9% of all SHCT Units).
entities) have	Arena, in its capacity as responsible entity of APF, will elect to participate
any holdings in	in the Redemption Offer, which at $1.15 equates to approximately $14.57
ARF or SHCT?	million. MSREF VII Global holds an indirect interest in APF.
	MSREF VII Global also indirectly holds 26.95 million ARF Units. Following
	the implementation of the Stapling Proposal, it will hold 26.95 million
	Stapled Securities. This equates to approximately 11.5% of the Stapled
	Securities on issue after implementation of the Stapling Proposal (but
	before processing any elections by SHCT Investors to accept the
	Redemption Offer).
	As at the date of this Document, Directors of Arena held units in ARF but
	not in SHCT (as detailed in Section 7.4) and will hold Stapled Securities
	following implementation of the Stapling Proposal.
	The Directors will not be entitled to vote their holdings at the Meeting.
	APF will not be entitled to vote its holdings at the SHCT meeting.
Will you receive	ARF Investors (as at the Interim Distribution Record Date) will receive an	Section 3.6
a distribution	Interim Distribution of 1.7 cents per ARF Unit for the period from 1
before the	October 2013 to 10 December 2013.
Stapling Proposal is implemented?	This Interim Distribution is expected to be paid in mid-February 2014, whether or not the Stapling Proposal is implemented.
What is the	As stated in ARF’s IPO PDS, ARF is currently forecast to deliver a FY14	Section 3.6
impact on	full-year distribution of 8.2 cents per ARF Unit. If the Stapling Proposal is
distributions	approved and implemented, the Stapled Group is forecast to deliver a
from the	FY14 full-year distribution of 8.45 cents per Stapled Security. On a pro-
Stapling	forma annualised basis, the FY14 net profit available for distribution to
Proposal?	Stapled Securityholders is forecast to be 8.8 cents per Stapled Security.
	Specifically, the distributions that ARF Investors are forecast to receive
	are shown in the table below.14
	Distribution period Distribution15
	1 July 2013 to 30 September 2013 2.05 cents
	1 October 2013 to 10 December 2013 1.70 cents
	11 December 2013 to 31 March 2014 2.50 cents
	1 April 2014 to 30 June 2014 2.20 cents
	FY14 total 8.45 cents

Details of the basis of preparation of the Forecasts and key assumptions and risks to the Forecasts are set out in Section 3 of this Document and Section 7 of the PDS.

14 Other than the first distribution (which has been declared but not paid), these figures are a Forecast. 15 Expressed per ARF Unit prior to Stapling and per Stapled Security after Stapling.

9 Arena REIT Notice of Meeting and Explanatory Memorandum

		For more
Question	Answer	information
What is the	As a result of funding the Redemption Offer and the costs of	Section 3
impact of	implementing the Stapling Proposal, the pro forma NTA per Stapled
the Stapling	Security will be between 1.2% and 2.2% less than the NTA per ARF Unit
Proposal on	(on a stand-alone basis) as at 30 June 2013.
the NTA of
ARF Units?
Who will	After the Stapling Proposal is implemented, Arena will continue to be	Section 9 of
manage the	the responsible entity for both ARF and SHCT and will manage the	the PDS
Stapled Group?	Stapled Group.
	Details of Arena’s Directors and management team are set out in
	Section 9 of the PDS.
How many	You will hold the same number of Stapled Securities as the number of ARF	Section 7.1
Stapled	Units you hold as at the Stapling Record Date.
Securities will you hold after the stapling?	For example, if you hold 50,000 ARF Units on the Stapling Record Date, you will hold 50,000 ARF Units and 50,000 SHCT Units which together form 50,000 Stapled Securities.
How was	The Stapling Ratio (1:1) was determined primarily with reference to the	Section 5
the Stapling	30 June 2013 NTA per unit of both ARF and SHCT (both approximately
Ratio and	$1.02).
Redemption Price determined?	The Redemption Price ($1.15) was determined having regard to a number of factors including:
	 the recent volume weighted average trading price of ARF on ASX;
	 the 30 June 2013 NTA per unit of both ARF and SHCT (both
	approximately $1.02);
	 a competitive offer price in the current market for acquiring the SHCT
	Healthcare Portfolio having regard to the effectiveness of the Stapling
	Proposal with respect to transaction costs;
	 the benefit to ARF investors from the increase in forecast FY14
	earnings for the Stapled Group; and
	 the overall benefits of the Stapling Proposal to ARF Investors,
	including the portfolio diversification benefits.
	The Redemption Price of $1.15 represents a premium to SHCT’s 30 June
	2013 portfolio Carrying Value of approximately 6.5%. However, from ARF’s
	perspective, after taking into account the higher transaction costs that
	would be involved if ARF acquired SHCT’s portfolio, the premium paid on
	SHCT’s Carrying Value (under that scenario) is effectively approximately
	2.6%17.
	For further information, refer to the Independent Expert’s Report set out
	in Section 5.
What fees are	If the Stapling Proposal is approved and implemented:	Section 3 of this
payable to Arena?	 Arena will receive an acquisition fee from ARF of $546,500 equivalent to 1.00% of the Carrying Value of SHCT’s Properties as at 30 June 2013; and	Document and Section 10 of the PDS
	 the existing accrued SHCT liability to Arena of $3.4 million for
	Deferred Management and Performance Fees(calculated based on

17 Under the Stapling Proposal, transaction costs are estimated to be $1.2 million or 2.2% of SHCT’s Carrying Value.

Arena REIT Notice of Meeting and Explanatory Memorandum 10

		For more
Question	Answer	information
	SHCT’s Carrying Value as at 30 June 2013) will become payable on
	the Admission Date, funded from the Debt Facility; and
	 there will be no change in the ongoing fees and costs payable by
	ARF Investors. The ongoing fees and costs payable by Stapled
	Securityholders are set out in Section 10 of the PDS.
	No brokerage or commission is payable by ARF Investors (in relation
	to implementation of the Stapling Proposal).
What are the	If the Stapling Proposal is approved and implemented, the total	Section 3
transaction	transaction costs payable by the Stapled Group are estimated to be
costs?	approximately $1.7 million (which includes the acquisition fee of $546,500
	referred to above).
	If the Stapling Proposal is not implemented, the total transaction costs
	payable by ARF are estimated to be approximately $550,000.
Are there any	The Stapling Proposal is subject to the approval of both ARF Investors	Section 7.1
conditions	and SHCT Investors and also subject to the confirmation of ASX and
precedent to	ASIC relief.
the Stapling
Proposal?
Will you be able	The General Constitutional Changes will enable the Stapled Group to
to reinvest my	establish a distribution reinvestment plan (DRP) in the future which may
distributions	be active from time to time. If the Arena Board decides to establish a
after the	DRP, details will be provided to ASX and posted on the Arena website.
Stapling Proposal is	It is not currently intended to activate the DRP.
implemented?
What is the	As part of ARF’s listing in June 2013, Arena announced an on-market	Section 3.1
status of the	buyback facility (Buyback). No ARF Units have been acquired under	of the PDS
Buyback?	the Buyback.
	On 1 November 2013, ARF announced to ASX that the Buyback was
	discontinued with immediate effect.
Do you need to	No. Your investment in the Stapled Group will be achieved by ARF	Section 7.1
make any	undertaking a capital return, and the proceeds being immediately applied
payment to	by Arena on behalf of ARF Investors to acquire the same number of SHCT
participate in	Units as the number of ARF Units held.
the Stapling
Proposal?
What are	The taxation implications of the Stapling Proposal for Australian resident	Section 4
the taxation	ARF Investors are addressed in Section 4.
implications of
the Stapling
Proposal?
Can you sell	Yes, ARF Units are expected to continue trading on ASX in the normal	Section 7.1
ARF Units	course (subject to the Listing Rules) until Tuesday, 10 December 2013
before the	(being the day before the expected Admission Date).
Meeting?	Deferred settlement trading of Stapled Securities on ASX is expected to
	commence on Wednesday 11 December 2013 with trading on a normal
	settlement basis commencing on Thursday, 19 December 2013.

11 Arena REIT Notice of Meeting and Explanatory Memorandum

Question	Answer For more information
When and where is the Meeting?	12.00pm (AEDT) Monday, 9 December 2013 Spring Street Conference Centre, Training rooms 7 & 8 1 Spring Street, Melbourne, Victoria 3000
What changes will be made to the ARF Constitution as a result of Resolution 1 (Stapling Resolution)?	The changes to the ARF Constitution fall broadly into the following categories:  changes to the issue price provisions so that ARF Units may be issued by reference to ASX trading price;  inserting provisions to allow redemption of unmarketable parcels;  inserting stapling provisions and other mechanical provisions to facilitate the Stapling Proposal; and  inserting provisions regarding the divestment of the Stapled Securities held by Foreign Investors. A full copy of the proposed changes is available by contacting Arena and will also be available at the Meeting. Section 2.8
What is the approval threshold for the Resolutions?	Both the Stapling Resolution and the General Constitutional Change Resolution are special resolutions and will be approved if 75% or more of the votes cast by ARF Investors present (in person or by proxy) and eligible to vote are cast in favour of the relevant Resolution. Section 8
How do you vote at the Meeting?	ARF Investors wishing to vote on the Resolutions must either attend the Meeting, either in person or by appointing a corporate representative or attorney, or return their proxy form by 12.00pm AEDT on Saturday, 7 December 2013. Section 8
What happens if you do not vote?	If you do not vote, the Resolutions will be determined by the votes of the ARF Investors who do vote. If Resolution 1 (Stapling Resolution) is approved and the Stapling Proposal implemented, you will hold Stapled Securities pursuant to the PDS in accordance with the Transaction Steps described in Section 7.1 unless you sell your ARF Units before the Stapling Record Date. Section 7.1
Do SHCT Investors also need to approve the Stapling Proposal?	Yes, implementation of the Stapling Proposal also requires the approval of SHCT Investors at a meeting to be held on the same date as the ARF Meeting. Section 7.1
Are the Resolutions inter- conditional?	No. If Resolution 1 (Stapling Resolution) is not approved, ARF Investors will still consider Resolution 2 (General Constitutional Changes) to amend the ARF Constitution to include certain provisions (primarily of an administrative nature) which reflect the transition of ARF from an unlisted entity to an ASX listed entity. The Arena Board considers the Stapling Proposal is in the best interests of ARF Investors (in the absence of a superior proposal) andunanimously recommends ARF Investors vote in favour of BOTH Resolutions.
How can further information be	If you have further enquiries please contact the Arena Information Line on 1800 008 494 (toll free within Australia) between 8:30 am and 5:00 pm (AEDT) Monday to Friday (excluding public holidays).

Arena REIT Notice of Meeting and Explanatory Memorandum 12

		For more
Question	Answer	information
obtained?	If you have queries or uncertainties relating to any matter you should
	consult your stockbroker, accountant or other professional adviser.

2.2 Rationale for the Stapling Proposal

The Arena Board considers the Stapling Proposal to be consistent with ARF’s stated investment objective and strategy and that SHCT’s Healthcare Portfolio meets ARF’s investment criteria. Having considered the advantages, disadvantages and risks of the Stapling Proposal as set out in this Document and the PDS, the Arena Board has concluded that the Stapling Proposal is in the best interests of ARF Investors.

(a) Background to ARF’s investment objective and strategy

ARF owns a portfolio of 173 childcare centres and 4 childcare development sites located throughout Australia valued at $234.9 million as at 30 June 2013, the majority of which are leased to Goodstart.

ARF was established in 2003 as an unlisted property trust to acquire and develop a portfolio of childcare centres and has since grown to be one of Australia’s largest owners of childcare centre properties. ARF was listed on ASX on 13 June 2013 as part of a carefully planned strategy to reposition ARF, allowing it to deliver liquidity to existing investors whilst improving earnings growth potential going forward. ARF was able to significantly reduce its Gearing Ratio (10.6% as at 30 June 2013) by raising $75 million of new capital. On 20 September 2013, ARF was included on the S&P/ASX 300 Index.

When ARF listed on ASX, the Arena Board broadened ARF’s investment strategy to include assets in the healthcare, education and government sectors and other sectors with attributes such as high credit quality tenants, relatively long leases and/or properties that have strategic importance to the operations of the tenant. Arena believes this broadening of the investment strategy will benefit ARF in the longer term for several reasons including better diversification of the underlying tenancy base and enhanced earnings growth potential. Following ARF’s successful capital raising and listing, Arena now seeks to execute on ARF’s investment objective and strategy by combining its existing Childcare Portfolio with SHCT’s Healthcare Portfolio through implementation of the Stapling Proposal.

(b) SHCT and the Healthcare Portfolio

The information below provides a summary of SHCT and the Healthcare Portfolio. Further details are set out in Sections 4 and 12.4 of the PDS.

(i) SHCT

SHCT was established in 2002 as an unlisted property trust and owns a portfolio of 6 medical centres located in and around Sydney, with a Carrying Value of $54.7 million (as at 30 June 2013).

13 Arena REIT Notice of Meeting and Explanatory Memorandum

(ii) Characteristics of the Healthcare Portfolio

The Primary Leases share similar positive characteristics with ARF’s Standard Childcare Lease, including:

WALE of 9.0 years.[18]
A minimum of 18 months’ notice of the tenant’s intention to exercise each 5 year option to extend the lease term.
Current rents are indexed annually either to CPI or a fixed increase of 2% to 3% (see Section 4.3 of the PDS for more details).
Primary Health Care is responsible for all operational and statutory outgoings including insurance, land tax (on a multiple holding basis) and repairs and maintenance (other than of a structural nature).

SHCT’s Healthcare Portfolio also offers the following diversification benefits for ARF Investors:[19]

Introduces healthcare exposure – ARF Investors will have a 18.9% weighting to the healthcare sector and a 81.1% exposure to the childcare sector[20] ;
Broadens tenancy base – the Combined Portfolio will have a 19%[21] exposure to a high quality operator in Primary Health Care which is a leading provider of medical services in Australia; and
Relatively long remaining lease term – a combined portfolio WALE of 8.4 years.

(iii) Primary Health Care

All 6 medical centres within the Healthcare Portfolio are leased to Primary Health Care.

Primary Health Care is a listed company in the S&P/ASX 100 Index that provides a comprehensive range of services and facilities to general practitioners, healthcare providers and specialists who conduct their own practices and businesses at its facilities. It is one of Australia's leading listed healthcare companies with a network of medical and pathology centres across Australia.

Primary Health Care has a market capitalisation of approximately $2.5 billion.[22] For the year ended 30 June 2013, Primary Health Care’s earnings before interest, tax, deductions and amortisation increased by 9.7% to $385.1 million, net profit after tax increased by 29% to $150.1 million and earnings per share increased by 28% to 29.9 cents per share compared to the prior financial year.

(iv) Independent valuation

The Healthcare Portfolio was independently valued as at 30 June 2013 with a Carrying Value of $54.7 million. A summary is contained in the following table:[23]

			WALE	Carrying	Passing	Value (per
Property	Address	NLA(sqm)	(years)	Value($m)	Yield	sqm)
Bondi Junction	3A Bronte Rd	1,139	9.5	12.0	7.82%	$10,536
MedicalCentre
Leichhardt	30 - 38 Short Street	2,036	9.2	12.3	8.49%	$6,041
MedicalCentre
Campbelltown	296 Queen Street	1,622	7.0	7.8	10.16%	$4,809
MedicalCentre
Dapto Medical	Corner Bong Bong Rd	2,196	9.9	8.2	9.09%	$3,734
Centre	and Princes Highway
Wentworthville	122-128 Station Street	1,652	9.5	7.7	9.05%	$4,661
MedicalCentre
Mt Druitt Medical	22 Jirrang Close	1,490	9.3	6.7	9.43%	$4,497
Centre
		10,135	9.0	54.7	8.86%	$5,392

18 As at 30 June 2013. 19 All figures as at 30 June 2013.

20 Both figures by reference value.

21 By reference value.

22 As at 1 November 2013.

23 In the table, sqm means square metres, and per sqm means per square metre.

Arena REIT Notice of Meeting and Explanatory Memorandum 14

2.3 Key benefits of the Stapling Proposal

The Stapling Proposal provides ARF Investors with the opportunity to gain exposure to SHCT’s Healthcare Portfolio which has features that are consistent with ARF’s investment objectives and strategy, as shown in the table below:

		Stapling Proposal
ARF investment objective	Generate an attractive and predictable distribution to ARF Investors with earnings growth prospect over the medium to long term	 The Stapling Proposal is forecast to be accretive to earnings for ARF Investors with FY14 distribution forecast to increase from 8.2 cents to 8.45 cents.24On a pro forma annualised basis, the FY14 net profit available for distribution is forecast to be 8.8 cents per Stapled Security. See Section 3.6 for more details.
ARF investment strategy	Relatively long remaining lease terms	 The WALE of the Healthcare Portfolio is 9.0 years compared to ARF’s portfolio WALE of 8.3 years.25
	Premises that have strategic importance for the tenant’s operations (eg. where purpose-built for the tenant)	 Each of the Properties in the Healthcare Portfolio was purpose built for Primary Health Care. See Section 4.3(c) of the PDS for details of each medical centre.
	High credit quality tenants	 All 6 properties are tenanted by Primary Health Care, an ASX100 listed company.
	Leases where the tenants are responsible for all, or substantially all, of the statutory and operating outgoings and costs including land tax, insurance, electricity, repairs and maintenance	 Under the terms of the leases, Primary Health Care is responsible for all operational and statutory outgoings including insurance, land tax (on a multiple holding basis) and repairs and maintenance (other than of a structural nature).
	Reversionary capital value risk which can be appropriately mitigated through active management	 The Healthcare Portfolio has a relatively long WALE (9.026 years) and the favourable macro fundamentals that underpin the healthcare sector provide a solid base on which Arena can actively management any reversionary risk.
ARF diversification strategy	Diversify the portfolio by sector	 The Stapling Proposal will give ARF Investors 18.9% exposure to the healthcare sector, reducing the current exposure to the childcare sector from 100% to 81.1%.27
	Diversify the portfolio by individual asset	 The Stapling Proposal will give ARF Investors exposure to 6 additional properties with the largest (Leichhardt) representing 4.2% of the value of the Combined Portfolio.28
	Diversify by tenant	 The Stapling Proposal will reduce ARF Investors’ exposure to Goodstart to 52.8% (down from 65.2%) by gaining exposure to Primary Health Care of 19%.29

24 Per ARF Unit or Stapled Security (as applicable). 25 Both figures as at 30 June 2013.

26 As at 30 June 2013. 27 All percentages as at 30 June 2013 by reference to value.

28 As at 30 June 2013. 29 All percentages as at 30 June 2013, by reference to value.

15 Arena REIT Notice of Meeting and Explanatory Memorandum

2.4 Key disadvantages and risks of the Stapling Proposal

Arena considers the main disadvantages of the Stapling Proposal to be:

As a result of funding the Redemption Offer, the Gearing Ratio will increase from 10.6% (for ARF as at 30 June 2013) to between 23% and 29% for the Stapled Group (noting that this remains below ARF’s target gearing ratio of 35% to 45%). If the Stapling Proposal is approved and implemented, the facility limit under ARF’s Debt Facility will increase to $140 million (compared to ARF’s current facility limit of $110 million); and
As a result of funding the Redemption Offer and the costs of implementing the Stapling Proposal, the NTA per Stapled Security will be between 1.2% and 2.2%[30] less than the NTA per ARF Unit (on a stand-alone basis) as at 30 June 2013.

Arena considers the key risks relating to an investment in the Stapled Group to be:

Concentration risk

The Combined Portfolio of the Stapled Group will be 81.1% invested in childcare centre properties and 18.9% invested in healthcare centres.[31] Adverse events affecting the childcare and healthcare sectors or industries may result in general deterioration of tenants’ ability to meet their lease obligations across the Combined Portfolio.
52.8% of the Combined Portfolio is leased to Goodstart and 19% of the Combined Portfolio is leased to Primary Health Care[32] . If Goodstart or Primary Health Care do not meet their lease obligations for any reason, this could reduce the Stapled Group’s income and/or adversely impact the value of its Properties.

Tenant risk

The Stapled Group will rely on tenants to generate its revenue. If a tenant is affected by financial difficulties it may default on its rental or other contractual obligations which may result in loss of rental income or losses to the value of the Stapled Group’s Properties.

Regulation and licensing risk

The provision of childcare services and healthcare services are regulated activities in Australia. There is therefore a risk that if a relevant licence or accreditation is revoked or not reviewed, a suitably qualified replacement tenant may not be found.

Government funding, policy risk and changes in law

Childcare and healthcare operators rely heavily on government funding, which if reduced, may adversely impact the underlying demand for childcare or healthcare services and therefore tenants’ ability to meet lease obligations. There is a risk that there may be changes in legislation, government policy or legal or judicial interpretation relating to both sectors.

Alternative use risk

The reversionary risks associated with investing in real estate assets are greater for special purpose facilities such as childcare and medical centres, which may require extensive expenditure and/or re-zoning to be suitable for other commercial purposes.

Arena considers the key risks relating to both current Properties and future investment strategy to be:

Acquisitions and divestments risk

The Stapled Group intends to make additional investments to diversify its portfolio, which may include the acquisition of additional childcare centres, healthcare properties or other assets. Future acquisitions (other than as previously disclosed) may affect the level of future returns to Investors of the Stapled Group. The Stapled Group may sell one or more Properties, which may result in a capital loss and a reduction of income.

Re-leasing and vacancy risk

There is a risk that the Stapled Group may not be able to negotiate suitable lease extensions with existing tenants or replace outgoing tenants with new tenants on substantially the same terms. The Stapled Group could also incur additional costs associated with re-leasing the Properties. Re-leasing the Properties would depend on market conditions and financial considerations prevalent at that time. There are 33 childcare centres leased to Goodstart where the tenant’s 5 year lease extension option must be exercised during FY14.

30 The exact percentage within this range will depend on the number of SHCT Investors who accept the Redemption Offer. 31 As at 30 June 2013, by reference to value.

32 As at 30 June 2013, by reference to value.

Arena REIT Notice of Meeting and Explanatory Memorandum 16

For further information on risks in these categories and specific risks relating to an investment in the Stapled Group see Section 5 of the PDS.

2.5 Independent Expert

Arena commissioned Moore Stephens to prepare an Independent Expert’s Report to express an opinion as to whether the Stapling Proposal is in the best interests of, and fair and reasonable to, ARF Investors.

The Independent Expert has concluded that the Stapling Proposal is “in the best interest of, and fair and reasonable to” ARF Investors in the absence of a superior proposal.

The Independent Expert’s Report is set out in Section 5.

2.6 Directors’ recommendation

The Arena Board considers the Stapling Proposal is in the best interests of ARF Investors (in the absence of a superior proposal) and unanimously recommends ARF Investors vote in favour of BOTH Resolutions.

2.7 Implications if the Stapling Proposal does not proceed

If the Stapling Proposal does not proceed for any reason, ARF will remain listed on ASX in its current form.

ARF has incurred $550,000 of transaction costs, whether or not the Stapling Proposal is implemented.

2.8 Details of the Stapling Resolution

The Stapling Resolution authorises Arena to make changes to the ARF Constitution falling into two categories, and Stapling Proposal Changes and General Constitutional Changes. These are summarised below.

(a) Stapling Proposal Changes

Resolution 1 authorises changes to the ARF Constitution which empower Arena to facilitate the Stapling Proposal. In summary, these changes include:

stapling provisions which empower the responsible entity of ARF to undertake a stapling of ARF Units with SHCT Units. Generally the stapling provisions provide that, from the date of stapling:
ARF Units can only be issued or redeemed if a corresponding number of SHCT Units are issued or redeemed; and
ARF Units can only be transferred if a corresponding number of SHCT Units are transferred;
allowing the responsible entity of ARF and the responsible entity of SHCT to agree on the allocation issue, redemption, cancellation and buyback prices or failing agreement, be based on the fair value based on the net asset backing of ARF Units and SHCT Units;
allowing the responsible entity of ARF to exercise any power or discretion having regard to the interests of ARF Investors as Stapled Securityholders;
empowering the responsible entity of ARF to give effect to any necessary modifications or variations to the terms of the Stapling Proposal which are not expressly provided for in the terms of the Stapling Proposal;
appointing the responsible entity of ARF and its officers as agent and attorney of ARF Investors to implement the Stapling Proposal; and
empowering the responsible entity of ARF to appoint a sale nominee (Sale Nominee) on behalf of Foreign Investors where it reasonably considers that it would be unreasonable to issue or transfer SHCT Units to a Foreign Investor, having regard to the cost of determining, and complying with, the legal requirements and the requirements of any relevant regulatory authority applicable to the issue or transfer of SHCT Units in the foreign place. Each Foreign Investor consents to and directs:
the responsible entity of ARF to pay any distributions, withdrawal proceeds or other payments in respect of its ARF Units, which are to be used to obtain SHCT Units (Amount), to the Sale Nominee;
the Sale Nominee to apply the Amount to obtain SHCT Units;

17 Arena REIT Notice of Meeting and Explanatory Memorandum

the Sale Nominee to then sell any Stapled Security; and
the Sale Nominee to pay the sale consideration to the Foreign Investor as soon as practicable after the sale of the relevant Stapled Securities.

(b) General Constitutional Changes

These proposed changes to the ARF Constitution, some of which were foreshadowed in ARF’s IPO PDS, are primarily of an administrative nature, reflecting its transition to being a listed entity. These changes include:

empowering the responsible entity of ARF to make in specie distributions to ARF Investors, including acting as agent and attorney for ARF Investors to sign all documents required to effect such in specie transfers;
allowing the responsible entity of ARF to be issued with ARF Units or Stapled Securities in lieu of receiving fees;
entitling ARF Investors to distributions based on the number of ARF Units held at the end of a distribution period;
giving the responsible entity of ARF the power to sell the ARF Units of ARF Investors that do not hold a marketable parcel of ARF Units;
various amendments to allow the responsible entity of ARF to issue ARF Units at a price which is referable to the market price of the ARF Units. In particular, the responsible entity of ARF can issue ARF Units at no less than 50% of the average market price over a period of up to 20 trading days immediately prior to the date on which the ARF Units are issued; and
embodying in the ARF Constitution, current ongoing management fee of:
0.8% per annum of the gross value of the assets (as that term is defined in the ARF Constitution) up to $400 million;
0.7% per annum of the gross value of the assets (as that term is defined in the ARF Constitution) greater than $400 million and up to $950 million; and
0.6% per annum of the gross value of the assets (as that term is defined in the ARF Constitution) greater than $950 million.

A detailed summary of the Constitutions if the Stapling Proposal is implemented is contained in Section 12.1 of the PDS.

2.9 Stapling Deed

If the Stapling Proposal is approved, Arena, on behalf of both ARF and SHCT proposes to enter into a Stapling Deed which will set out various matters in respect of the relationship between ARF and SHCT and the ARF Units and SHCT Units which will be stapled to form Stapled Securities.

A detailed summary of the Stapling Deed is contained in Section 12.2 of the PDS.

Arena REIT Notice of Meeting and Explanatory Memorandum 18

3 Financial Information

3.1 Introduction

The financial information in this Section 3 is presented in a summarised form and has been extracted from the Financial Information contained in Section 7 of the PDS.

The financial information contained in this Section 3 comprises:

The ARF and Stapled Group Income Statements comprising:
Historical income statement for ARF for the year ended 30 June 2013 derived from ARF’s audited financial statements (ARF FY13 Historical);
Forecast income statement for ARF for the year ending 30 June 2014 (ARF FY14 Forecast);
Pro forma forecast income statement for the Stapled Group for the year ending 30 June 2014 assuming the Stapling Proposal was implemented on 1 July 2013 (Stapled Group FY14 Pro Forma Forecast); and
Pro forma forecast income statement for the Stapled Group for the year ending 30 June 2014 assuming the Stapled Proposal is implemented on the Stapling Record Date (Stapled Group FY14 Statutory Forecast).
The Pro Forma Balance Sheets comprising:
Pro forma historical balance sheet for ARF as at 30 June 2013 derived from the audited financial statements of ARF (ARF Pro Forma Balance Sheet);
Historical balance sheet for SHCT as at 30 June 2013 derived from the audited financial statements of SHCT (SHCT Historical Balance Sheet); and
Pro forma historical balance sheet for the Stapled Group as at 30 June 2013 adjusted for certain transactions assuming the Stapling Proposal occurred on 30 June 2013 (Stapled Group Pro Forma Balance Sheet).

3.2 Further Financial Information

ARF Investors should refer to Section 7 of the PDS for further financial information in respect of the Stapled Group, ARF and SHCT.

19 Arena REIT Notice of Meeting and Explanatory Memorandum

3.3 Basis of preparation

(a) Overview

The Arena Board is responsible for the preparation of the Financial Information. The Financial Information has been prepared in accordance with the recognition and measurement principles contained in Australian Accounting Standards and other mandatory professional reporting requirements in Australia, except where otherwise disclosed.

The Financial Information is presented in an abbreviated format and does not contain all the disclosures provided in an annual report prepared in accordance with the Corporations Act and presents financial information on a basis (such as EBIT and Net operating profit available for distribution), which are not in accordance with the presentation requirements of Australian Accounting Standards.

ARF Investors should refer to Section 7.2 of the PDS for further information on the basis of preparation of the Financial Information.

PricewaterhouseCoopers Securities Ltd has prepared an Investigating Accountant’s Report in respect of the Financial Information contained in Section 7 of the PDS which is set out in Section 8 of the PDS. ARF Investors should note the scope and limitations of that report.

(b) Forecast Financial Information

Arena has prepared the Forecasts based upon various assumptions. Due care and attention has been given to the preparation of the Forecasts and the assumptions represent Arena’s best estimate of anticipated future transactions and events based on information and documentation available at the date of issue of the PDS. Arena considers the Forecasts to be reasonable and that there is a reasonable basis for the preparation of the Forecasts. ARF Investors should appreciate that forecasts by their very nature are subject to uncertainties which may be outside of the control of Arena or may not be capable of being foreseen or accurately predicted. As such, actual results may differ from the Forecasts and such differences may be material. There can be no guarantee or assurance that the Forecasts will be achieved.

ARF Investors are advised to review the best estimate assumptions set out in Section 7.5 of the PDS (for the Stapled Group), Section 7.8.1 of the PDS (for ARF), Section 7.9.1 (for SHCT), the sensitivity analysis set out in Section 7.7 of the PDS, the risk factors set out in Section 5 of the PDS and other relevant information set out within the PDS.

ARF Investors should note that the Forecasts exclude fair value adjustments for the mark-to-market of interest rate swaps used for hedging interest rate risk and revaluation of investment properties (net of transaction costs). These fair market value movements are excluded from the Forecasts as Arena does not believe that there is a reasonable basis for a forecast as they may be subject to external market factors such as market yields and general economic conditions. These items are also excluded from the assessment of underlying earnings used by Arena to determine periodic distributions to ARF Investors.

Arena REIT Notice of Meeting and Explanatory Memorandum 20

3.4 ARF and Stapled Group Income Statements

Set out in the table below are historical and forecast income statements in respect of ARF as a stand-alone Trust and for the Stapled Group. Each Income Statement has been extracted from Section 7 of the PDS.

The historical information presented in the table below is only provided in respect of FY13. Historical information in respect of FY11 and FY12 is included in Section 7 of the PDS.

	Historical	Forecast
		Stapled
$ million	ARF FY13 Historical Stapled Group FY13 Pro Forma Historical1,3	ARF FY14 Forecast Group FY14 Pro Forma Forecast1,3 Stapled Group FY14 Statutory Forecast2
Income
Net property income	20.3 25.0	20.9 25.7 23.4
Straight lining of rental income4	0.5 0.4	0.3 0.3 0.3
Other income	0.6 0.6	– – –
Expenses
Management fees	(2.4) (2.4)	(1.9) (2.5) (2.2)
Other operating expenses	(0.8) (0.9)	(0.5) (0.6) (0.6)
Stapling transaction costs	– –	– – (1.2)
EBIT	18.2 22.7	18.8 22.9 19.7
Net interest and borrowing costs	(7.3) (8.9)	(1.6) (3.7) (2.8)
Net operating profit excluding fair value adjustments	10.9 13.8	17.2 19.2 16.9

Non-distributable income and expenses:
 Straight-lining of future fixed rental increases4	(0.5) (0.4)	(0.3) (0.3) (0.3)
 Write-off capitalised borrowing costs	0.8 0.8	– – –
 Stapling transaction costs	– –	– – 1.2
Net operating profit available for distribution5,6	11.2 14.2	16.9 18.9 17.8
Weighted average number of securities on Issue (million)	135.7 162.7	206.3 213.5 209.9
Underlying Earnings per Security (cents)	8.2 8.7	8.2 8.8 8.5
Distribution per Unit (cents)	8.0	8.2 8.45
Tax deferred component7	83%	28% 26%

Notes:

Represents the annualised pro forma FY13 historical and FY14 forecast income statement for the Stapled Group assuming the Stapling Proposal occurred on 1 July 2012.
Assumes the Stapling Proposal occurs on the Stapling Record Date and therefore includes 12 months of contribution from ARF, but only approximately 6 months contribution from SHCT. A reconciliation between the Stapled Group FY14 Pro Forma Forecast and the Stapled Group FY14 Statutory Forecast is set out in Section 7.3.2 of the PDS.

21 Arena REIT Notice of Meeting and Explanatory Memorandum

The Stapled Group’s pro forma income statements have been derived from consolidating the income statements of ARF (as set out in Section 7.8.2 of the PDS) and SHCT (as set out in Section 7.9.2 of the PDS) in each relevant historical period adjusted to:
a. reduce the management fees expense of the Stapled Group in comparison to the actual fees incurred by ARF and SHCT in each relevant historical period (reductions of $0.6 million in FY13 representing a 20% reduction of the consolidated historical management fees in-line with the fee arrangements that will apply to the Stapled Group); and
b. eliminate SHCT’s Deferred Management and Performance Fees expense (as set out in Section 7.9.2 of the PDS) which will not be accrued under the fee structure of the Stapled Group.
Represents the non-cash income from the straight-lining of future fixed rental increases per Australian Accounting Standards which are excluded from distributions to investors.
Net operating profit available for distribution represents net income from which cash distributions will be determined. In addition to the items noted above, this excludes the movement in fair market value from the revaluation of interest rate swaps and investment property and asset acquisition costs. Refer to Section 13 of the PDS for further information on the Stapled Group’s distribution policy.
ARF’s and the Stapled Group’s net cash flow from operating activities is expected to be substantially the same as net operating income over the course of a reporting period as operating cashflow generally occurs within the 30 day period prior to or following the relevant transaction being recognised in the income statement.
Percentage of distribution expected to be tax deferred. Refer to Section 4 for information on the tax implications from holding Stapled Securities.

3.5 Pro Forma Balance Sheets

The following table has been extracted from Section 7.4 of the PDS.

			Pro Forma	Adjustments
			SHCT		Stapled
As at 30 June 2013	ARF	SHCT	Accrued	Stapling	Group Pro
$million	Pro Forma	Historical	Fees1	Proposal2	Forma
Cash	4.4	1.0	–	–	5.4
Trade and other receivables	1.8	0.3	–	–	2.1
Investment properties	236.5	54.7	–	0.5	291.7
Total Assets	242.7	56.0	–	0.5	299.2
Trade and other payables	3.3	0.5	–	–	3.8
Deferred Management and Performance Fees1	–	3.4	(3.4)	–	–
Distribution payable	3.3	0.7	–	–	4.0
Borrowings (non-current)4	26.0	23.7	3.4	24.6	77.7
Interest rate swaps	0.1	0.1	–	–	0.2
Total Liabilities	32.7	28.4	–	24.6	85.7
Net Assets	210.0	27.6	–	(24.1)	213.5
Total Equity	210.0	27.6	–	(24.1)	213.5
Securities on Issue (millions)3	206.3	27.0			213.5
NTA per Unit	$1.02	$1.02			$1.00
Gearing Ratio5	11%	42%			26%

Notes:

The Stapling Proposal provides for SHCT’s existing Deferred Management and Performance Fees liability to become payable on the Admission Date. SHCT will use the Debt Facility to fund the payment.
Represents the debt funding for the assumed redemption of the entitlement to 19.8 million Stapled Securities under the Redemption Offer ($22.9 million), payment of transaction costs ($1.2 million) and asset transaction fees ($0.5 million) associated with the Stapling Proposal. ARF Investors should refer to Section 7.5 of the PDS for assumptions in relation to the Redemption Offer and Section 7.7.2 of the PDS on sensitivities in respect of the Redemption Offer.

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The Stapled Group Pro Forma number of Securities on Issue of 213.5 million represents the forecast number of Stapled Securities on issue (represented by 1 unit in ARF and 1 unit in SHCT) following the capital returns and the completion of the Redemption Offer. ARF Investors should refer to Section 7.5.1 of the PDS for assumptions in respect of the Redemption Offer and Section 7.7.2 of the PDS on sensitivities in respect of the Redemption Offer.
Interest bearing liabilities are presented at the drawn amount.
Gearing Ratio is calculated as Borrowings / Total Assets.

3.6 Distribution Guidance

Distributions are determined by Arena with reference to the Net operating profit available for distribution which represents underlying profit for the relevant period. Refer to Section 13 of the PDS for further information on the Distribution Policy.

Distributions to ARF Investors are generally expected to be payable quarterly in arrears to ARF Investors on the unit register on the distribution record date. Distributions are expected to be paid within 8 weeks following the end of each quarterly period.

(a) ARF Interim Distribution (December 2013 Quarter)

ARF Investors will receive a distribution from ARF of 1.70 cents per ARF Unit for the December 2013 quarter prorated for the period prior to the Admission Date.

(b) Stapled Group Distributions

If the Stapling Proposal proceeds, the Stapled Group is forecast to pay distributions to ARF Investors in respect of distribution periods subsequent to the Admission Date. The first distribution from the Stapled Group will be for the period from Admission Date to 31 March 2014. The following distributions are forecast to be paid by the Stapled Group in respect of FY14 for the period post implementation of the Stapling:

	Distribution
	(per Stapled
Distributionperiod	Security)
Admission Date to 31 March 2014	2.50 cents
June Quarter 2014	2.20 cents

(c) Full Year FY14 Distribution

If the Stapling Proposal proceeds, ARF Investors are forecast to receive a total FY14 distribution of 8.45 cents per Stapled Security.

If the Stapling Proposal does not proceed, ARF Investors are forecast to receive a total FY14 distribution of 8.2 cents per ARF Unit.

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4 Tax information for ARF Investors

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