HomeCo are one of the first AREITs to provide an update on its expected financial impacts from COVID.
On 23 March 2020, HomeCo announced that it would be withdrawing its FY20 distribution guidance given the significant impacts COVID19 would have on their business. Since then, Home Consortium has been working diligently to address the impacts with proactive and decisive actions to manage the social and operational risks for employees, tenants and customers.
HomeCo has taken a partnership approach in working with tenants and endeavoured to work within the framework of the National Cabinet Mandatory Code of Conduct for small to medium sized enterprises and in the spirit of the Code for larger tenants. Their general philosophy in assisting larger tenants has been broadly focussed around providing rental support through a combination of rent deferrals and one-off lease incentives – in return for granting extensions to lease terms providing HomeCo with additional contracted future rental revenue.
HomeCo have seen foot traffic in March increase by 17% but then reduce by 10% in April with 90% of stores still open and trading.
HomeCo have announces that it has agreed a go forward position relating to COVID-19 support with over 95% of tenants (by income) and anticipates that rental support provided via abatements to be approximately $6-7 million in FY20. Rent abatements provided to tenants impacted by COVID-19 have primarily been structured to be incurred in FY20 and therefore are not expected to impact FY21 cash flows. Rent abatements provided to tenants will be structured as a lease incentive and will be amortised over the lease term.
As a result of this assessment and other measures the Group has taken, HomeCo is now in a position to offer guidance on its FY20 final distribution. The groups previous advice was that its final fully franked dividend would be 10.0 cents per security, adding to the 4.5 cents interim dividend for the 1st Half of FY2020. It is now anticipated that the final dividend will be a minimum of $0.05 per security (fully franked), taking the total FY20 dividend to $0.095 cents per security, down -36% on its IPO forecast of $0.15 cents per security.
As compensation for the reduction in cash remuneration, HomeCo intends to provide a one-off grant of share rights, the quantum of which will be reviewed and determined by the Board.
HomeCo remains well capitalised with no debt maturities until FY23 and approximately $142 million in liquidity as at 30 April 2020 through cash and undrawn bank facilities following the payment of the FY20 interim dividend in March 2020. HomeCo expects to be within its key financial covenants including an interest cover ratio of more than 2.0 times and an loan to value ratio not to exceed 50%.
On 8 April 2020 HomeCo agreed to purchase a Ballarat leasehold property with a settlement date in April 2022. HomeCo has signed a lease with a Federal Government entity to anchor the Ballarat centre and has commenced construction of this tenancy which is expected to open in 1H FY21. HomeCo’s financial returns from the Ballarat acquisition are expected to be 7% p.a. and 10% p.a. on an ungeared and geared basis respectively.
The Groups' Cairns and Coffs Harbour centre developments remain on track with expected openings in 1H FY21. The Richlands centre development is now expected to open in 2H FY21 to allow additional time for specialty leasing with only 61% of the Centre under signed leases.
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