Home Consortium Seeks to Lead Alternative Sectors

25 August 2021

HomeCo released their results today with sights set on becoming a $10bn manager and leader in the Alternatives Sector by 2024.

During the year, HomeCo successfully launched the HomeCo Daily Needs REIT and has set the wheels in motion for the listing of the Health & Wellness REIT with high ambitions for both platforms.

HMC Managing Director and CEO, David Di Pilla, said “We are pleased to deliver another strong set of results which validate our strategy and the significant value we’ve created for HMC securityholders since IPO. We delivered FFO of 13.1 cps or 15.2 cps on an adjusted basis for the in-specie distribution, up 75% on FY20.”

“FY21 was a transformational year for HMC on our journey to become Australia’s alternative asset manager of the future. We successfully transitioned from a pure asset owner with $0.9bn of AUM at IPO to a capital light fund manager with the ability to grow externally managed AUM to $10bn+ with existing capital sources.”

“HMC will manage two ASX-listed vehicles in sectors which are opportunity rich and exposed to attractive global megatrends – last mile logistics and health & wellness. We are committed to the long-term success of our vehicles through strong alignment and well-established investment mandates based on bottom-up model portfolio construction and focus on capital protection for our investors.”

“Post the establishment of HCW, HMC will have ~$1bn of available liquidity providing significant capacity to rapidly scale our funds management platform and expand into new alternative asset classes which leverage our ability to execute large complex transactions and access to capital. Our goal is to grow externally managed AUM to $5bn by the end of 2022 and $10bn by the end of 2024.”

HMC Managing Director and CEO, David Di Pilla, said “The strong momentum has continued in FY22 with the upcoming ASX-listing of HCW in Sep-21 following a successful $650m equity raising which was strongly oversubscribed and subsequently upsized. Looking ahead, our management team remains highly motivated and excited to take HMC into its next growth phase. HMC will continue to evolve in a disciplined and measured way towards its ambition to become Australia’s alternative asset manager of the future.”

HMC has started FY22 with strong momentum and is pleased to provide the following guidance:

Pre-tax FFO of at least 18.5 cents per security up +35% on FY21
FY22 DPS guidance of 12.0 cents (65% pre-tax FFO payout ratio)

As a fund manager, HMC now has greater re-investment opportunities with the potential to generate returns above its cost of capital. HMC will maintain a flexible approach with regard to future distributions as it continually assesses its capital needs.

Home Consortium are on our Top Picks List

Home Consortium (“HMC” or “HomeCo”) commenced the financial year trading at $3.20 against a NAV of $3.69 (19% discount to NAV) and finished the year at $5.44 against a reduced NAV of $2.45 (122% premium to NAV). The Group delivered distributions of 12.0cps for the period, equating to a 4.0% yield on the opening price on 1st July 2020. Together with the increase in unit price over the year, the Total Securityholder Return equates to 85%.

Financial highlights

FY21 FFO of 13.1 cps up 51% versus FY20 pro forma FFO of 8.7 cps
Pro forma Jun-21 net cash position versus 35.6% gearing at Jun-20
~$1bn liquidity provides capacity to scale funds management platform to $10bn+ of AUM by CY24
109% TSR since IPO in Oct-19, outperforming the S&P/ASX 200 A-REIT Index by 101%

Operating Highlights

Total AUM of $2.5bn up +144% since FY20
Successfully listed HomeCo Daily Needs REIT (ASX: HDN) in Nov-20 and grown AUM by 82%
HealthCo REIT (ASX: HCW) on-track to list in Sep-21 following successful $650m equity raising

FY21 was another transformative year for Home Consortium as it completed a number of major strategic transactions to progress funds management initiatives via its ‘Own, Develop and Manage’ strategy including:

HomeCo Daily Needs REIT

Establishment of the HomeCo Daily Needs REIT (‘HDN’) that owns a portfolio of convenience-based assets and listed on the ASX on 23 November 2020. HDN is externally managed by Home Consortium and was established via a distribution in specie of ordinary units in HDN to Home Consortium securityholders (‘Capital Distribution’). In addition to the Capital Distribution, HDN completed an equity raising of $300.0 million at the time of the ASX listing. Home Consortium retained a direct investment in HDN of approximately 26.6% as at the ASX listing date.
Home Consortium has actively managed HDN during FY21 growing assets under management from $0.9 billion at ASX listing in November 2020 to $1.4 billion as at 30 June 2021 whilst delivering total shareholder returns of 8.7% (14.2% annualised) to 30 June 2021.

HealthCo Healthcare and Wellness REIT

Home Consortium completed and/or contracted approximately $215.6 million of healthcare & wellness focused property acquisitions during FY21 as seed assets for a planned Healthcare and Wellness focused REIT to be managed by Home Consortium.
Subsequent to 30 June 2021, Home Consortium lodged on 2 August 2021 a product disclosure statement (‘PDS’) with the Australian Securities and Investments Commission in relation to the proposed establishment of an ASX listed HealthCo Healthcare and Wellness REIT (‘HCW’) and entered into an underwriting agreement in relation to an offer of new ordinary units to raise $650.0 million in September 2021. Home Consortium will have a direct investment in HCW of approximately 20.0% as at the ASX listing date. The group continues to progress its planning for the establishment an unlisted Healthcare and Wellness fund.

Capital recycling

As part of its strategy to transition to a capital light fund manager Home Consortium completed approximately $335.4 million of asset disposals during FY21. This included the contracted sale of seven large format retail assets to HDN for a total purchase price of $266.4 million. HDN unitholder approval was obtained at an extraordinary general meeting on 16 June 2021 and settlement occurred on 1 July 2021.
The establishment of HealthCo Healthcare and Wellness REIT will see the majority of healthcare and wellness properties transfer to HCW and which are classified as held for sale assets as at 30 June 2021. Home Consortium is expected to be in a net cash position following the establishment of HCW.

Strategy

HMC is focused on two high conviction themes; last mile logistics, and health & wellness

The secular shift to omni-channel retailing is a megatrend which has been significantly accelerated by Covid-19 enabling retailers to increasingly leveraging their existing store networks as the optimal solution for both in-store and on-line fulfilment. HMC will continue to focus on densely populated locations which are best positioned to operate as last mile fulfilments centres due to customer proximity.

In health & wellness, long term demand for healthcare is underpinned by demographic tailwinds, technological advancements and increased consumer focus and expenditure on quality of care and outcomes. The number of Australians 65+ are set to grow by 1.3m to 5.6m by 2030 and the 85+ aged group is expected to grow by 45% by 2030.

Post establishment of HealthCo HealthCare & Wellness REIT, HMC will directly own only $207.7m of direct property investments comprising $188.1m LFR assets and $19.6m healthcare assets.

This is consistent with HMC’s strategy since IPO to actively recycle capital from its direct property investments into co-investments in HMC managed vehicles which generate additional capital light income streams.

HMC’s capital light model has the potential to deliver enhanced equity returns and significant value creation as capital recycling proceeds are re-invested at higher returns and above HMC’s cost of capital.

HMC will manage $2.2bn of external AUM across two ASX-listed vehicles versus nil in the prior corresponding period. Post the establishment of HCW REIT, HMC will own $432m of co-investments across its 27% and 20% co-investments in HDN and HCW respectively.

HMC’s strategy is to hold 10-15% long term co-investments in its ASX-listed REITs.

Valuation

The property portfolio comprised freehold investment properties as at 30 June 2021 with a fair value of $188.1 million (30 June 2020: $1,013.8 million). Adjusted net tangible assets was $2.38 per security (30 June 2020: $3.20 per security).

The reduction in investment properties and net tangible assets was primarily driven by the transfer of properties to HomeCo Daily Needs REIT and subsequent Capital Distribution. Investment properties was also impacted by the transfer of assets to held for sale in anticipation of the establishment of the HealthCo Healthcare and Wellness REIT.

Balance Sheet

During July 2020 Home Consortium undertook a $140.0 million fully underwritten placement at $2.88 per security and a non-underwritten share purchase plan which raised $10.6 million to support the acquisition of seed assets for funds management activities. As part of the July 2020 acquisitions Home Consortium issued to the vendor of the Aurrum Erina property $20.0 million of securities at $2.88 per security. The issue of securities and acquisition of Aurrum Erina was approved by securityholders on 1 September 2020.

Home Consortium completed a $125.0 million fully underwritten placement in December 2020 at $3.80 per security to support the acquisition of properties for the planned HealthCo Healthcare and Wellness REIT.

As at 30 June 2021, the group had $254.8 million of drawn debt (30 June 2020: $366.0 million), a gearing ratio of 25.6% (30 June 2020: 35.6%) and cash and undrawn debt of $72.4 million (30 June 2020: $136.9 million). As part of the Capital Distribution Home Consortium reduced its debt facility limit by $185.0 million to $315.0 million (30 June 2020: $500.0 million). Hedged debt as a percentage of drawn debt was 68.7% as at 30 June 2021 (30 June 2020: 47.8%). The group’s cost of debt was 2.5% per annum as at 30 June 2021 (30 June 2020: 2.4% per annum).

Outlook & Guidance

HMC has provided the following guidance:

Pre-tax FFO of at least 18.5 cents per security up +35% on FY21
FY22 DPS guidance of 12.0 cents (65% pre-tax FFO payout ratio)