HomeCo Daily Needs REIT Upgrades Outlook

17 February 2021

The HomeCo Daily Needs REIT has lifted its earnings outlook as cash collections, rental growth and valuations grow ahead of pre-IPO forecasts.

Portfolio Fund Manager, Mr Paul Doherty, said “It is pleasing for our maiden half-year reporting period to deliver such a strong set of results which deliver on our PDS forecasts. We have maintained a high quality and defensive exposure across our target sub-sectors, and we have achieved 99% unadjusted cash collection since IPO.”

“The portfolio is well positioned with more than 76% national tenants and 94% of assets in metro locations . Importantly, we are on track to deliver on our strategy of providing unitholders with exposure to a portfolio of stabilised, predominantly metro-located and convenience-based assets targeting consistent and growing distributions to unitholders.”

Financial highlights

  • FY21 FFO guidance of $20.5m (4.2 cents per unit) reflecting a 9% upgrade to the PDS FY21 FFO of $18.5m (3.9 cents per unit) which is the second FY21 FFO guidance upgrade since IPO
  • FY21 PDS distribution per unit of 4.2 cents per unit is reaffirmed and is expected to be fully FFO covered
  • 99% unadjusted cash collections has continued since IPO from Nov-20 to Jan-21
  • $1.34 NTA per unit versus $1.33 Oct-20 PDS balance
  • Dec-20 gearing of 34.5%, within the target gearing range of 30-40%

Operational highlights

  • 98.7% occupancy +0.2% versus Oct-20 PDS and 96.7% trading occupancy +3.6% versus PDS
  • Comparable supermarket MAT growth of 22% with two supermarkets over turnover rent threshold
  • 19% like for like Dec-20 quarter annual foot traffic growth versus prior corresponding period
  • $104m acquisitions since IPO. Bunnings Seven Hills new 10-year lease signed, asset revalued +7%
  • ~25,000sqm GLA major developments. Ellenbrook Dec-20 stage one opening ahead of schedule and Richlands on target for Mar-21 opening
  • 5 brownfield developments (~$22m of projects) scheduled to open in FY22. 10%+ p.a. target cash yield

HomeCo Daily Needs REIT’s portfolio has been further enhanced the original portfolio with $104m of acquisitions taking the portfolio to value to $977.8m at 31-Dec-20 (+17%). The acquisitions include:

  • Bunnings Seven Hills (NSW)
    • $56 million purchase price. Immediately value accretive with new 10-year lease signed with Bunnings
    • 7% increase in independent valuation ($56.0m purchase price / $60.0m independent valuation at 4.50% cap rate)
  • Marsden Park Shopping Centre (QLD)
    • $48 million purchase price representing a cap rate of 6.75%
    • Coles anchored metro Queensland convenience asset with 5.8 ha land holding (14% site coverage), 530 car spaces and 7.9-year WALE

HomeCo Daily Needs REIT also continues to utilise its substantial land holding with ~25,000 sqm GLA of major developments tracking to budget and timetable, including Ellenbrook (WA) which opened 6 months ahead of schedule and Richlands (QLD) on track for opening in Mar-21.

HomeCo Daily Needs REIT’s low site coverage of 31.6% provides opportunity to unlock additional income and value through brownfield developments. HomeCo Daily Needs REIT currently has $22m of brownfield
development projects scheduled for opening in FY22 which are expected to deliver a 10%+ p.a. cash yield.

Portfolio Fund Manager, Mr Doherty, said “We have achieved a significant amount in the short period since listing on the ASX and the portfolio is on-track to deliver stable growing income streams to unitholders.”

As a result of current trading HomeCo Daily Needs REIT has lifted the earnings outlook with FY21 FFO guidance of $20.5m (4.2 cents per unit) reflecting a 9% upgrade to the PDS FY21 FFO of $18.85m (3.9 cents per unit).

Whilst Earnings have lifted, Home Co have retained the distribution per unit of 4.2 cents per unit. The first distribution of 2.4 cents per unit is scheduled for the 4-month period to 31-Mar-21 (100% tax deferred) and is expected to be fully FFO covered.

Our Views

We support the thematic of the HDN Daily Needs REIT. The focus on neighbourhood convenience assets has proven to be a far more resilient sector.

The REIT has a 30% exposure to large format retail centres which are often supported by more discretionary retailers which we feel adds some risk to the long term portfolio value and income, however a deeper analysis of the tenant mix suggests that this risk is not significant with a large proportion of national tenants carrying items that are often shopped for in person rather than purely on-line.

The REIT’s distribution yield is only 3.1% and is trading at NTA. HomeCo will likely aggressively grow the portfolio and build cash reserves to help support acquisitions. We therefore expect the REIT to trade at or above NTA in as the group grows.

HomeCo Daily Needs are on our recommend list.