HDN Reports Stable 4.3c FFO per Unit, $650m Development Pipeline Unveiled

• 1H FY25 FFO per unit steady at 4.3 cents, matching prior year
• Approximately $200 million in acquisitions and $250 million in asset disposals executed
• Development pipeline exceeds $650 million targeting 7%+ return on invested capital
• Occupancy and cash rent collections maintained above 99% since IPO
• Board refresh with Zac Fried appointed as Non-Executive Director

Strategic Asset Management Drives Stability

HomeCo Daily Needs REIT (ASX: HDN) has delivered a solid first half performance for FY25, maintaining funds from operations (FFO) per unit at 4.3 cents, consistent with the prior corresponding period. This stability comes amid a proactive asset recycling strategy, where approximately $250 million of traditional large format retail (LFR) assets were sold, largely at book value, to strengthen the balance sheet and enhance cash flow resilience.

Simultaneously, the REIT invested around $200 million in acquisitions focused on daily needs assets, exemplified by the recent purchase of the Lutwyche property. This rebalancing reflects HDN’s commitment to refining its portfolio towards convenience-based retail assets that underpin steady income streams.

Robust Development Pipeline and Operational Strength

HDN’s development pipeline remains a key growth lever, with over $650 million identified in projects targeting returns above 7% on invested capital once stabilised. In the first half, $75 million of pre-committed developments commenced, including projects at Tuggerah and Castle Hill, with plans to initiate $100-120 million in developments throughout FY25.

Operationally, the REIT continues to demonstrate resilience, maintaining occupancy and cash rent collections above 99% since its IPO. Comparable net operating income (NOI) grew by 4.0%, supported by positive re-leasing spreads of 6.1% and weighted average rent reviews of 3.6%, underscoring strong tenant relationships and effective portfolio management.

Financial Position and Guidance Reaffirmed

At December 2024, pro-forma gearing stood at 34.6%, comfortably within HDN’s target range of 30-40%, aided by the disposal of the Logan asset. Interest rate hedging covers 80% of drawn debt, providing protection amid a volatile rate environment. Net tangible assets (NTA) per unit increased modestly to $1.45, reflecting portfolio valuation gains and underlying NOI growth.

Importantly, HDN reaffirmed its FY25 guidance, targeting FFO of 8.8 cents per unit (cpu), representing 2.3% growth over FY24, and distributions of 8.5 cpu, up 2.4%. This reiteration signals management’s confidence in the REIT’s earnings trajectory despite broader economic uncertainties.

Governance Update: Board Refresh

In governance developments, HDN appointed Zac Fried as a Non-Executive Director, effective immediately. Fried brings extensive retail sector experience as Executive Deputy Chairman of Spotlight Group and President of the Large Format Retail Association. His appointment follows the retirement of Greg Hayes, who served on the board since 2020 and contributed significantly to audit and risk oversight.

The board changes are expected to strengthen HDN’s strategic oversight as it navigates growth and portfolio transformation.

Overall, HomeCo Daily Needs REIT’s half-year results reflect a well-executed strategy balancing portfolio quality, development growth, and financial discipline. The reaffirmed guidance and robust pipeline position HDN well to sustain its market-leading role in Australia’s daily needs retail real estate sector.

Bottom Line?

With a strong balance sheet and clear growth pipeline, HDN is poised to deliver steady returns amid evolving market conditions.

Questions in the middle?

• How will HDN’s development projects perform amid potential economic headwinds?
• What impact will Zac Fried’s appointment have on HDN’s strategic direction?
• How might interest rate fluctuations affect HDN’s hedging strategy and future earnings?