The HomeCo Daily Needs REIT has acquired a portfolio of HomeCo large format retail assets along with the Armstrong Creek Town Centre in deals worth $322m.
Home Consortium, has entered into conditional agreements to sell a 100% interest in a portfolio of 7 large format retail assets for a total purchase price of $266.4 million and an average cap rate of 6.75%.
The seven assets are;
- Marsden Park (NSW): Sydney metro LFR centre anchored by Nick Scali and Anaconda.
- Box Hill (VIC): Melbourne metro LFR centre anchored by Decathlon, Goodlife and BCF.
- South Morang (VIC): Melbourne metro LFR centre anchored by Amart and Plenty Valley Medical.
- Upper Coomera (QLD): Gold Coast metro LFR centre anchored by Spotlight and TK Maxx.
- Bundall: (QLD): Gold Coast metro LFR centre anchored by Nick Scali and Goodlife.
- Mackay (QLD): Spotlight and Nick Scali anchored LFR centre.
- Toowoomba (QLD): Amart and Nick Scali anchored LFR centre
HDN will separately also be acquiring Armstrong Creek Town Centre for a total purchase price of $55.6 million, representing a 6.0% capitalisation rate. Armstrong Creek is a newly completed Coles-anchored neighbourhood centre which opened for trade in September 2020 and provides exposure to the high population growth corridor of the
Geelong region of Victoria.
HDN Portfolio Fund Manager, Paul Doherty, commented, “The acquisitions and associated equity raise announced today are in line with our strategy to grow HDN’s portfolio of high-quality convenience-based assets in the metropolitan growth corridors of Australia’s major cities. The acquisition asset mix is complementary to HDN’s existing portfolio and maintains our defensive exposure across HDN’s model portfolio sub-sectors of Neighbourhood, Large Format Retail and Health & Services.”
The HMC portfolio purchase price is in line with 31 December 2020 portfolio book value and is at a 6% discount to 30 June 2021 independent valuations of $283.72 million resulting in a revaluation benefit of $17.3 million expected to be realised by HDN Unitholders upon settlement in early July 2021.
Completion of the Portfolio sale is subject to all requisite approvals, including HDN Unitholder approval at an extraordinary general meeting, which is expected to be held in June 2021.
HomeCo Daily Needs REIT will be undertaking a $265 million underwritten accelerated non-renounceable 1 for 2.36 Entitlement Offer (Entitlement Offer) at an issue price of $1.295 (Issue Price) per unit (New Unit) to partially fund $322 million of proposed acquisitions.
HDN Independent Non-Executive Chairman Simon Shakesheff said: “Today’s announcement builds on HDN’s strong growth trajectory since IPO. HDN is executing on its stated strategy to provide Unitholders with consistent and growing distributions by investing in a diversified portfolio of high quality, stabilised convenience focused assets. The proposed acquisitions and equity raising substantially improve the quality and scale of HDN’s portfolio and are expected to deliver FFO accretion and reduced gearing. The proposed transaction demonstrates the strong alignment of interests with Home Consortium, HDN’s largest Unitholder and manager.”
The sale of the LFR Portfolio continues HMC’s transition towards a capital light fund manager with significant financial capacity to accretively reycle capital and grow funds under management to over $5 billion in the medium-term. Importantly, the transaction increases HMC’s externally managed AUM to $1,348m, an increase of 38% versus $978 million pre-transaction (and 60% growth since the IPO of HDN in November 2020). As a result of these transactions HMC will receive net proceeds of $198 million, HomeCo’s pro-forma 31 December 2020 gearing is expected to decrease to 0% from 13.6%.
HomeCo Group Managing Director and Chief Executive Officer David Di Pilla said: “HMC continues to execute on its strategy to unlock value and growth through capital recycling. Importantly, our actions today clearly demonstrate the strong alignment between HMC and HDN and our ability to create value for investors across our platform.”
HMC reaffirms FY21 FFO guidance of no less than $35.0 million (12.9 cents per security). HMC also reaffirms FY21 dividend guidance of 12.0 cents per security.
Further Information
This sale was always part of HomeCo strategy to lighten the balance sheet via the establishment of the separate Daily Needs REIT.
The Daily Needs REIT now comprises a mixture of neighbourhood and large format retail offerings which takes the tenant mix beyond that of daily needs. If we listed and grouped the tenants into Daily, Weekly, Monthly, Quarterly and Yearly based on the number of trips their customers make each year to their store, I suspect we would see less than 20% in the Daily category and more than 30% in the Monthly category and 30% in the Quarterly Category.
HDN describe their tenancy mix as;
The 7 asset LFR portfolio data is listed below. HDN have benefited from the sharpening of cap rates over the past 6 months and HMC unitholders could be upset by this discount. HMC will counter this argument by noting that HMC will take up its full entitlement to the capital raising by HDN but will be selling back to HDN any bonus units being taken up by eligible unitholders.
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