HomeCo Daily Needs REIT

HDN Details

HomeCo Daily Needs REIT (ASX: HDN) is one of Australia’s leading Real Estate Investment Trusts, mainly involved in investing in convenience-based assets across the target sub-sectors of Neighbourhood Retail, Large Format Retail and Health & Services.

Result Performance (H1FY22 Ended 31 December 2021)

• HDN’s total assets grew $547 million to $1.9 billion as of 31 December 2021, underpinned by acquisitions and developments as well as valuation gains.
• The company has reported a total revenue of $56.9 million during the period compared to $6.8 million in H1FY21.
• HDN posted a net profit of $120.6 million in H1FY22 against a loss of $22.2 million in H1FY21.
• The REIT’s financial performance was significantly supported by active undertaking of investment activities, leading to the increase in the portfolio to 33 properties as of 31 December 2021 from 20 properties as of 30 June 2021.

Source: Analysis by Kalkine Group

Recent Update:

• On 4 March 2022, Aventus Capital Limited and Aventus Holdings Limited (collectively, Aventus) declared the fruitful implementation of the merger. Therefore, Aventus Shares and Aventus Units have been unstapled from each other. HMC Funds Management Limited as responsible entity of the HomeCo Daily Needs REIT has acquired 100% of the Aventus Units from holders of Aventus Units under the Trust Scheme. Further, Home Consortium Limited has acquired 100% of the Aventus Shares through a scheme of arrangement.

Outlook

The company highlighted that the transactional evidence for high quality daily needs assets stays strong and assists additional upside potential for its portfolio that is strategically inclined to Australia’s leading metropolitan markets and growth corridors. Notably, the company has upgraded FY22 pro forma FPO per unit guidance to 9.3 cents from 8.9 cents earlier, which comprises ~$100 million of new debt funded acquisitions that are likely to complete in H2FY22 and the net impact from financing activities including the HDN’s debt facility and new interest rate hedging (including the breaking of certain AVN legacy losses). Further, it has guided to achieve FY22 statutory FPO of 8.8 cents. Additionally, HDN has upgraded FY22 distribution per unit guidance to 8.28 cents.

Risk Analysis

The company is exposed to the threats of the COVID-19 pandemic, as it could impact the operating environment and the company’s tenant base. The company’s main interest rate risk relates to the long-term borrowings that obtained at variable interest rates.  

Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)

Technical Overview

Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The stock has been valued using Price/EPS multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to Price/EPS Multiple (NTM) (Peer Average) considering the decent outlook as well as improved FY22 pro forma FFO per unit guidance.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the factors above, we give a “Buy” recommendation on the stock at the current market price of $1.2775 per share (Time: 2:19 PM (GMT +10), Sydney, Australia) on 8^th March 2022.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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