How HomeCo Daily Needs REIT Is Growing FFO Amid Rising Interest Rates
HomeCo Daily Needs REIT posted solid FY25 results with growth in funds from operations and distributions per unit, underpinned by strong portfolio valuation and operational metrics. The REIT’s FY26 guidance signals continued growth supported by a robust development pipeline and disciplined capital management.
- FFO per unit increased to 8.8 cents in FY25
- Distribution per unit rose to 8.5 cents, maintaining steady growth
- Portfolio valuation climbed to $4.9 billion with occupancy above 99%
- Gearing remained moderate at 35.2% with liquidity of $107.9 million
- FY26 guidance targets 9.0 cents FFO per unit and 4% comparable NOI growth
Strong Operational Performance in FY25
HomeCo Daily Needs REIT (ASX, HDN) has reported a resilient set of financial results for the fiscal year ended June 30, 2025. Despite a challenging interest rate environment, the REIT delivered funds from operations (FFO) per unit growth to 8.8 cents, up from 8.6 cents the previous year. Distributions per unit (DPU) also increased to 8.5 cents, reflecting the REIT’s ability to sustain income growth for investors.
The portfolio value rose to $4.9 billion, supported by a 6% valuation uplift and strong asset revaluations. Occupancy and rent collection rates remained exceptionally high, both exceeding 99%, underscoring the defensive nature of HomeCo’s daily needs retail assets concentrated in Australia’s major metropolitan growth corridors.
Balanced Capital Management and Development Pipeline
HomeCo maintained a solid balance sheet with gearing at 35.2%, comfortably within its 30-40% target range. Liquidity stood at $107.9 million, providing flexibility for ongoing asset recycling and development activities. The REIT completed several asset disposals at or near book value, recycling proceeds into high-quality neighbourhood assets and its development pipeline.
The development pipeline remains robust, valued at over $650 million, with targeted commencements of $80-$120 million in FY26. Projects such as Castle Hill and Tuggerah are expected to deliver returns on invested capital (ROIC) of around 7% or higher, reflecting disciplined capital allocation and tenant demand-led growth strategies.
Outlook and Sustainability Initiatives
Looking ahead, HomeCo is guiding for FFO per unit of 9.0 cents and DPU of 8.6 cents in FY26, alongside a targeted 4% comparable net operating income (NOI) growth. The REIT’s focus on daily needs retail, combined with a constrained retail supply pipeline nationally, positions it well to capture sustainable income growth.
On the sustainability front, HomeCo has achieved a 32% reduction in scope 1 and 2 emissions since FY22, driven by solar installations and energy management systems across its portfolio. The REIT also maintains strong governance and social initiatives, including gender diversity targets and community programs supporting youth.
Strategic Positioning in a Changing Market
HomeCo’s portfolio is heavily weighted towards metropolitan east coast markets, with a diversified tenant base dominated by national retailers in neighbourhood and large format retail segments. This strategic positioning, combined with active asset management and development, underpins its steady growth trajectory despite macroeconomic headwinds.
While interest rate pressures remain a consideration, HomeCo’s hedging strategy and strong interest coverage ratio provide a buffer. The REIT’s ability to recycle capital and unlock embedded value through development will be key to sustaining returns in the medium term.
Bottom Line?
HomeCo Daily Needs REIT’s FY25 results reinforce its resilience and growth potential, setting the stage for disciplined expansion amid evolving market conditions.
Questions in the middle?
- How will rising interest rates beyond FY26 impact HomeCo’s cost of debt and distribution growth?
- What are the risks and timelines associated with the REIT’s $650 million development pipeline?
- How might changes in retail tenant demand or supply constraints affect portfolio occupancy and rental growth?