HDN CEO-designate, Darren Holland said, “Today’s result marks the beginning of our new journey as Australia’s leading Daily Needs REIT following the merger between the HomeCo Daily Needs REIT and Aventus. HDN delivered FFO/unit growth of 38% versus the prior corresponding period which was driven by strong underlying income growth and accretive investments into both our development pipeline and strategic acquisitions.
“Despite the ongoing presence and uncertainties brought about by COVID-19, our portfolio delivered over 99% unadjusted cash rent collection, occupancy remained stable above 99% and leasing spreads were positive on both new leases and renewals completed during the period. The combined portfolio saw $350m of net revaluation gains which was underpinned by both income growth and a further tightening in capitalisation rates. Transactional evidence for high quality daily needs assets remains robust and supports further upside potential for our portfolio which is strategically weighted to Australia’s leading metropolitan markets and growth corridors.”
Highlights
- 1H FY22 FFO of $30.6m up 121% versus the pcp
- 1H FY22 FFO/unit of 4.0 cents up 38% versus the pcp
- Pro forma Dec-21 gearing of 32.2% versus 35.0% at Jun-21
- Pro forma Dec-21 NTA/unit of $1.40 versus $1.24 at Jun-21, supported by $350m of net revaluations
- >99% unadjusted cash rent collections in 1H FY22 and since IPO (Nov-20)
- Positive leasing spreads of +4.9% across 69 leasing deals
- Identified development pipeline increased to $500m including several large-scale opportunities
- Remaining FY22 developments on track to open in 2H FY22 and generate a >10% ROIC
- Announced >$60m of new development projects to commence in FY23 with a target ROIC of >7%
FY22 guidance and proposed fee reduction
- FY22 pro forma FFO guidance upgraded to 9.3 cpu, which represents a 4.5% upgrade on prior guidance of 8.9 cpu
- FY22 DPU guidance upgraded to 8.28 cpu, reflecting a 2% increase in Q4 FY22 distribution following merger implementation
- Well positioned for inclusion into the S&P/ASX 200 at the next rebalance
- HMC has agreed to reduce HDN’s base management fee from 55bps to 50bps (-9%) for GAV >$5.0bn
PORTFOLIO UPDATE
On a Merged Group basis, the fair value of investment properties increased 9.7% from $4,055m at Jun-21 to $4,446m at Dec-21. The total portfolio weighted average capitalisation rate compressed 30 basis points to 5.55% (5.85% as at 30 June 2021) reflecting continued strong investment demand for high quality convenience and LFR assets in the broader market
| Portfolio statistics (Dec-21) | HDN | AVN | Merged Group |
| Number of properties | 32 | 19 | 51 |
| Fair value | $1,926m5 | $2,519m | $4,446m |
| Weighted Average Capitalisation Rate | 5.34% | 5.70% | 5.55% |
| Weighted Average Lease Expiry | 7.1 | 3.4 | 5.0 |
| Site coverage ratio | 32% | 44% | 38% |
| Average gross rent/sqm | $325/sqm | $342/sqm | $335/sqm |
DEVELOPMENT UPDATE
Developments provide a meaningful source of growth for HDN and offer attractive incremental returns on capital. HDN’s strategically located portfolio (which spans 2.5 million sqm of land) and low site coverage of 38% provides significant long-term potential to unlock additional income and capital growth. Post the merger with AVN, HDN has over $500m of identified development opportunities and is targeting >$60m of annual capex at a target ROIC of 7%+9 for FY23
- HDN has >$30m of accretive brownfield developments across 7 sites which are 100% pre-leased and on track to deliver a 10%+ ROIC on completion in FY22. The extension at Gregory Hills Town Centre successfully completed in Dec-21 achieving a ROIC of 9.5%. The current valuation of $100m is well in excess of the $69m purchase price in late 2020 and subsequent ~$12m capital investment
- HDN has identified >$60m of additional value accretive brownfield development opportunities which are expected to commence in FY23. These 7 projects are expected to add >23,000 sqm of additional GLA to the portfolio and deliver a 7%+ ROIC
- Post the merger, HDN will look to accelerate a number of larger scale opportunities (including town centre redevelopments) that exist across the portfolio
CAPITAL MANAGEMENT
HDN is now leveraging its increased scale and position to execute on its credit strategy to diversify debt sources, increase debt tenor and lower the cost of debt for HDN
Key capital management highlights include:
- A Moody’s Rating Assessment Service (RAS) investment grade credit rating of ‘Baa2 stable’ for the merged group
- A new $1.62 billion senior secured debt facility following the merger with liquidity of $205m and an average debt tenor of 3.9 years as at December 2021 on a merged basis
- Pro forma gearing of 32.2% which is below the mid-point of the target gearing range of 30-40%
- Pro forma Hedged debt of 56.0% post the merger with an average hedged debt tenor of 3.6 years10
PROPOSED BASE MANAGEMENT FEE REDUCTION
HMC has agreed to enhance HDN’s cost structure following the significant increase in the scale of the entity post the merger with AVN ($4.4bn GAV).
Under the revised structure, HDN’s incremental base management fee will reduce to 50 bps from 55 bps when HDN’s GAV exceeds $5.0bn.
HMC Managing Director and CEO, David Di Pilla said, “The decision to reduce HDN’s base management fee demonstrates HMC’s strong alignment as HDN’s manager and commitment to support the continued growth and success of the REIT”.
FY22 GUIDANCE
HDN is pleased to provide the following guidance for FY22:
- FY22 pro forma FFO per unit guidance is upgraded to 9.3 cents (previously 8.9 cents)
- FY22 statutory FFO per unit guidance is 8.8 cents
- FY22 distribution per unit guidance upgraded to 8.28 cents
Upgraded FY22 pro forma FFO guidance of 9.3 cents includes ~$100m of new debt funded acquisitions expected to complete in 2H FY22 and the net impact from financing activities including the refinancing of HDN’s debt facility and new interest rate hedging (including the breaking of certain AVN legacy hedges)
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