HomeCo Daily Needs REIT (ASX:HDN) reported a first-half result it described as another period of “disciplined and focused execution,” pointing to earnings growth, continued valuation gains, and high portfolio occupancy driven by active leasing and development activity.
First-half performance and guidance
Chief Executive Officer Sid Sharma said funds from operations (FFO) per unit increased 2.5% versus the prior corresponding period, while distributions per unit rose 1.2% as the payout ratio continued to moderate under the trust’s plan to “right size over time.” Sharma added that net tangible assets (NTA) continued to grow, supported by strong asset revaluations, marking the fourth consecutive period of positive net valuation gains.
Leasing, occupancy, and tenant performance
Fund Manager Paul Doherty emphasized the REIT’s operating metrics, citing comparable net operating income (NOI) growth of 4.2% and occupancy above 99%. He said cash collections remained above 99% and described the portfolio as resilient through economic cycles.
Doherty said HDN delivered leasing spreads of 6.2% across 97 leasing deals in the half, alongside low incentives of less than 4%, and maintained a weighted average lease expiry (WALE) of 4.9 years. He also said 88% of income is reviewed annually at a weighted average of 3.5%.
On trading conditions, management said tenant sales data is only available for a subset of the portfolio, but the retailers that reported delivered total moving annual turnover (MAT) growth of 2.4% for the half, with non-supermarket retailers up 3.7%. In response to a question on recent trends, Sharma said retailers had reported a moderation in growth after a recent interest rate rise, with some moving from double-digit growth rates during the Black Friday-to-New Year period to around 4% to 5% growth.
In Q&A, Doherty provided additional color on leasing spreads, stating that of the 97 deals completed in the period, 33 were new leases (including leasing vacant space or replacing tenants), which achieved low double-digit spreads. Renewals delivered a spread just under 5%. He added that incentives were roughly 10% on new leases and less than 0.5% on renewals, describing the portfolio’s growth as driven by retailer performance rather than “buying rent.”
Portfolio footprint and valuations
Doherty said the portfolio had grown to AUD 5.1 billion and is concentrated in population growth corridors, with 40% in Sydney metropolitan, 19% in Melbourne metropolitan, and 17% in Greater Brisbane and the Gold Coast. He said about 12.7 million Australians live within 10 kilometers of a HomeCo center and referenced population growth forecasts of 21% in catchments around the portfolio over the next decade.
The REIT highlighted diversification across tenants, with Doherty noting the top 10 tenants contribute income with no single tenant exceeding 10% of revenue. He also said the trust owns real estate occupied by approximately 1,350 tenants.
On valuations, Doherty said portfolio valuation growth was AUD 212 million gross, underpinned by NOI growth. He said valuations were also supported by accretive tenant-led developments and moderately tightening capitalization rates. Chief Financial Officer Phil Dooley said the weighted average cap rate was 5.51% at 31 December.
Development pipeline and capital allocation
Management said HDN has a development pipeline of about AUD 650 million and a stated target return on invested capital (ROIC) of at least 7%, with active projects “on track” and described as delivering in excess of 8% historically. However, management said the timing of future development deployment is under review in light of the economic environment and interest rate outlook.
Sharma said the trust aims to keep gearing around 35% and indicated valuation gains could fund roughly AUD 50 million of developments each year within existing balance sheet settings, with any incremental funding beyond that under consideration given rates. In Q&A, he said this was a “prudent capital management” decision rather than a change to the 7% hurdle rate, which he characterized as strong relative to typical retail property development returns.
The call included updates on specific projects:
- Warilla Grove: Located 15 kilometers south of Wollongong and anchored by Woolworths and Aldi; management forecast 10% ROIC on incremental development spend.
- Leisure and lifestyle expansion (11,200 sqm): Expected to commence trading in March; occupied by Officeworks, Nick Scali, and Anaconda. Management said it is delivering a return above 7% and had a AUD 13 million net valuation gain at December. The site retains a further 10,000 sqm of land with approval for an additional 7,000 sqm of GLA, with interest from multiple retailers.
- Pokolbin and Caringbah: Management said both developments are on track, with Pokolbin reaching practical completion and expected handover to tenants in early March.
- Other projects: Management said one project is ahead of schedule with an opening forecast in October 2026, including a 1,000 sqm online fulfillment center and complementary daily needs retailers. Through an unlisted grocery fund investment, construction has commenced at neighborhood centers in Richlands and Diggers Rest, targeted to open in the first half of 2027.
In response to a question on the development pipeline, Sharma said the trust may “pull back” near-term deployment versus its historical run rate to manage risk amid higher rates, while maintaining an earnings growth trajectory.
Financial position, debt, and recycling activity
Dooley said first-half FFO increased 4.6% to AUD 148.7 million, supported by leasing spreads and development completions, while net interest expense reflected the higher interest rate environment. He said hedging was increased to 70%, which, together with revenue growth, helped offset interest costs and support distributions of AUD 0.043 per unit for the half.
At 31 December, Dooley said NTA increased to AUD 1.55 per unit from AUD 1.40, reflecting improving valuations and favorable derivative movements. He said gearing was 35.2%, or 34.6% adjusted for the post-balance date settlement of the North Lakes disposal, and described this as the midpoint of the target range. Pro forma liquidity increased to AUD 80 million following the North Lakes sale.
During the half, HDN divested three assets at a small premium to book value, with proceeds reinvested into higher quality neighborhood centers. The REIT also completed acquisitions of three assets: Warilla, Leppington land, and Caringbah. Post period, it settled the disposal of North Lakes.
On funding, Dooley said a debt facility due to expire in July 2026 was extended to July 2028 with a margin reduction of 42.5 basis points. The trust also executed AUD 75 million of new swaps, taking hedging to 70%, and reported a weighted average cost of debt of 4.8%. In Q&A, management said the weighted average margin was around 1.3% and indicated further improvement was expected as debt rolls off.
Management also addressed capital allocation questions, noting buybacks are “not off the table,” but did not provide specifics on thresholds for action.
About HomeCo Daily Needs REIT (ASX:HDN)
HomeCo Daily Needs REIT is an Australian Real Estate Investment Trust listed on the ASX with a mandate to invest in convenience-based assets across the target sub-sectors of Neighbourhood Retail, Large Format Retail and Health & Services. HomeCo Daily Needs REIT aims to provide unitholders with consistent and growing distributions. HomeCo Daily Needs REIT(ASX:HDN) operates independently of Home Consortium Limited as of December 31, 2020.
