Childcare: The Emerging Asset Class in Australian Commercial Property

Our next speaker is Michael Cameron, Commercial Director at Jara, a commercial real estate developer and fund manager.

Jara have delivered more than 30 childcare centers nationally, and Mike will be explaining why childcare is the emerging asset class in commercial property.

Over to you, Mike.

Thank you, Darren.

Hello, and thank you everyone for joining us.

Today, I'm going to take you through Jara Childcare Trust,

or JCT, and how we're building Australia's leading vertically integrated childcare network.

Our unique owner-operator model brings together high quality childcare real estate and a national operating platform under the brand Early Learning Collective.

This combination gives us a structural advantage across the entire childcare value chain.

Before we begin, I'd like to note that today's presentation is for wholesale investors only.

It's a summary of the offer and any investment decision needs to be made with reference to the information memorandum and your own independent advice.

Our aim today is to talk to you through our strategy, the structure, and why we believe JCT represents a compelling opportunity in the Australian childcare market.

JCT offers a unique opportunity to participate in both sides of the childcare value chain.

That is, as landlord through the ownership of institutional grade childcare real estate, and also as shareholder in Early Learning Collective, the operating business itself.

This dual investment model is only possible because of the expertise and alignment between our business, Jarrah, and Early Learning Management.

That's Jarrah Childcare Trust's operations partner.

Our investment thesis is built on four pillars.

Our unique dual investment model, a focus on value-add investment opportunities, compelling industry fundamentals, and deep industry expertise.

JCT targets a 15% IRR pre-tax post fees anchored in a portfolio of 50 or 60 investments across childcare real estate and operating businesses.

The structure is a five-year closed-end fund with quarterly distributions and a minimum investment of $250,000.

We're well progressed with the fund.

We've already settled four investments and have a strong pipeline of high quality opportunities secured through the early learning collective rollout.

Australia's childcare sector is highly fragmented.

Small operators hold around 35% of the market share, while the top five groups hold less than 17%.

Typically what we find is smaller operators provide community connection and greater educator relationships, but as looking forward are facing increased pressure to maintain governance standards.

At the other end of the market, large corporate operators bring systems and capital, but often we find they struggle to maintain culture at the center level.

We've really positioned JCT to be the best of both worlds.

It blends the authenticity and community focus of smaller operators with the governance systems and scale advantages of a national operator.

Our vertically integrated model gives us influence over key drivers of performance, being site selection, design, operations, and long-term delivery.

And because growth is pipeline-led through our early learning collective partnership, we don't rely on speculative acquisitions.

Each project is purpose-built and aligned from day one.

Childcare underpins Australia's workforce.

More than 50% of children aged zero to five attend childcare, and demand is rising.

This is primarily due to higher living costs, dual income households, rising female workforce participation, and later retirement ages, reducing grandparents' support in some instances.

So childcare is not discretionary, it's core social infrastructure.

Childcare is also one of Australia's most strongly supported sectors.

We've seen government funding increase nearly 62% over the past decade, and upcoming reforms promise to further increase support to the sector over the next two years.

The CCS or childcare subsidy pays for up to 90% of daily fees directly to the provider, meaning the revenue stream is stable and predictable.

Childcare attendance rates are increasing.

Hours in care are also rising and industry revenue continues to grow.

Population growth is shifting into core family corridors and families are prioritising quality purpose-built centres with strong educator relationships.

That is exactly the segment where JCT is positioned.

Early Learning Collective is a national childcare business.

It brings together Jarrah's capability in site selection and design and combines that with Early Learning Management's 35 years of operational experience to operate the childcare centres.

Every centre is purpose-built, community-focused, technology-enabled and designed to support educator retention, which is what we see as the sector's largest competitive differentiator.

We invest only in locations with enduring fundamentals, strong demographics, constrained supply, and clear demand drivers.

We target investments with value add potential, whether through development, repositioning, or operational improvement.

The capital structure of JCT is such that investors hold 100% of the childcare real estate that the fund invests in.

And JCT also benefits from a one-third equity stake in Early Learning Collective, the operating business.

This is issued at no cost, providing a meaningful upside without diluting real estate returns.

This structure aligns JARA, our operations team, Early Learning Management, and investors to deliver a cohesive national rollout.

Our real estate strategy focuses on capturing development uplift, securing long-term net leases and building a portfolio of diversified Australian childcare real estate.

This approach combines value creation today with defensive income over the life of each asset.

This is a process which Jarrah has replicated many times for numerous childcare operators and investment funds in the past.

Our business strategy creates operational uplift through strong occupancy growth, discipline portfolio management, scalable systems and culture, and the potential for evaluation arbitrage as the network grows.

Comparable transactions demonstrate the uplift achievable as this platform grows.

Jara is deeply embedded in the childcare sector.

Since 2019, we've delivered over 30 childcare projects with some of Australia's leading operators.

We've also invested in over 10 operating childcare businesses.

So the JCT model is a direct evolution of this track record of delivering good outcomes, both for our tenants and our investment partners.

We've teamed up with Early Learning Management as our operations partner for Jarrah Childcare Trust.

We've dealt with a lot of large national childcare operators, and we're particularly impressed with ELM.

They've been operating for more than 35 years.

They have 100 services currently under management today, and they have deep governance and compliance capability, which I think is really important now more than ever.

This partnership is a major competitive advantage for JCT.

Our initial portfolio really is testament to our strong focus on value-add investments for Jarrah Childcare Trust.

These seed assets are targeting IRR pre-tax post fees of up to 28% per annum.

And that's a blend of development uplift on the real estate, lease income, and then operational trade-up of the business.

In closing, JCT is a real estate-led investment fund with a built-in national pipeline, operational alignment with the tenant, and multiple value creation levers.

Not only this, Jarrah Childcare Trust is a strategy that we have an established track record with, both as a developer and fund manager, but also as an operator.

JCT's owner-operator model captures development uplift, operational upside, and long-term real estate income.

It's all underpinned by a sector with essential service characteristics and bipartisan government support.

Thank you for your time and I welcome any questions.

Thanks for the insights into the childcare sector today, Mike.

Now investors who may be looking at a range of commercial property assets from office to industrial, you know, the normal

sort of the normal assets that one might expect in the sector.

Why should they actually look at childcare in your opinion?

How does childcare compare to those other sectors?

First and foremost, it's the underlying fundamentals of the investment.

Childcare is an essential service.

It's more than 50% of children tend childcare now.

That number is rising.

And it's also got very strong government support in and that we see that increasing over the next few years.

Okay, thanks, Mike.

And if investors do want to have a look at the childcare sector in a little bit more detail, what would you say are the key risks to investing in the sector?

What should they look out for?

Like any real estate investments, I would be focusing on the fundamentals.

So a successful centre will have two things.

One will typically have two things.

It will be a convenient location for parents to access on the way to work, be that near a train station, a main road or shopping center, something that's a demand catalyst and also a good operator.

So it's really those two things combined, it's site selection and it's a high quality operator.

Okay, thank you for your insights into childcare today, Mike.

Thanks, Darren.