HomeCo’s Profit Surge Highlights Risks Amid Rising Interest Costs
HomeCo Daily Needs REIT has reported a remarkable turnaround in its half-year results, posting a $116.8 million profit compared to a loss last year, while maintaining stable revenue and distributions.
- Half-year profit of $116.8 million, reversing prior loss of $10.7 million
- Revenue marginally increased to $179.2 million
- Interim distribution declared at 2.125 cents per unit
- Net tangible assets per unit steady at $1.45
- Gearing ratio slightly increased to 36%, with refinanced debt facilities
Strong Financial Turnaround
HomeCo Daily Needs REIT (ASX: HDN) has delivered a significant financial recovery for the half-year ended 31 December 2024, reporting a profit of $116.8 million compared to a loss of $10.7 million in the same period last year. This turnaround was driven primarily by a $35.9 million gain in fair value adjustments on assets and liabilities, a stark contrast to the $94.6 million loss recorded in the prior period.
Revenue from ordinary activities remained stable, edging up slightly to $179.2 million from $179.0 million, reflecting consistent property income and interest earnings. The Trust’s Funds from Operations (FFO), a key measure of recurring earnings, also improved modestly to $89.9 million, maintaining a per unit FFO of 4.3 cents.
Distribution and Unit Growth
In line with its improved earnings, HomeCo declared interim distributions of 2.125 cents per unit for the half-year, consistent with the previous period’s payout. The distribution reinvestment plan (DRP) remained active, with no discount applied to the DRP price, encouraging unitholders to reinvest dividends into new units. This resulted in the issuance of over 2 million new units during the period, slightly increasing the total units on issue to 2.08 billion.
Net tangible assets per unit held steady at $1.45, reflecting the Trust’s stable asset base and prudent capital management. The portfolio’s weighted average capitalisation rate remained unchanged at 5.6%, underscoring the resilience of HomeCo’s property assets amid market fluctuations.
Capital Structure and Portfolio Highlights
HomeCo’s gearing ratio edged up to 36%, a modest increase from 35.1% six months prior, supported by refinanced debt facilities that extended maturities and maintained liquidity. The Trust’s drawn debt stood at $1.79 billion against a facility limit of $1.85 billion, with a hedged debt proportion of nearly 80%, helping to mitigate interest rate risks amid a rising rate environment.
The property portfolio remained robust, comprising 47 daily needs assets valued at $4.73 billion, up from $4.61 billion at the previous half-year. The Trust completed acquisitions totaling $198 million and capital expenditure of $74 million, while also progressing asset sales, including the contracted sale of HomeCo Logan, Queensland.
Outlook and Strategic Considerations
While the half-year results signal a strong recovery, HomeCo’s financial performance remains sensitive to interest rate movements and property market conditions. The Trust’s management continues to focus on disciplined capital deployment, portfolio optimisation, and maintaining distribution sustainability. The stable net tangible asset value and consistent distributions suggest confidence in the underlying assets and operational strategy.
Investors will be watching closely how HomeCo navigates the evolving economic landscape, particularly with refinancing risks and potential shifts in tenant demand within the daily needs retail sector.
Bottom Line?
HomeCo’s solid half-year rebound sets a positive tone, but interest rate pressures and market dynamics warrant close monitoring.
Questions in the middle?
- How will rising interest rates impact HomeCo’s cost of debt and future profitability?
- What is the outlook for rental income growth across HomeCo’s daily needs portfolio?
- Will HomeCo pursue further acquisitions or divestments to optimise its asset mix?
