HomeCo Daily Needs REIT (ASX:HDN) H1 2025 Earnings Call Highlights: Strong Revenue Growth Amid ...
Release Date: February 12, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
HomeCo Daily Needs REIT (ASX:HDN) reported strong top-line revenue growth with a 4% increase in comparable net operating income (NOI).
The company maintains a high occupancy rate of over 99% and a cash collection rate of 99% monthly, indicating strong tenant demand and financial stability.
HDN has a robust development pipeline valued at $700 million, with $100 million set to commence this year, promising future growth.
The REIT's portfolio is strategically located in Australia's largest and fastest-growing cities, with 86% of assets in metropolitan areas, enhancing growth potential.
HDN achieved sector-leading leasing spreads of 6.1%, reflecting strong tenant demand and effective asset management.
The company faces increased net interest expenses, which rose by 14%, potentially impacting profitability.
Asset recycling has led to the disposal of $250 million in traditional large format retail assets, which may affect short-term revenue.
The gearing ratio stands at 34.6%, which, while within the target range, indicates a need for careful financial management to avoid over-leverage.
The development pipeline requires significant capital expenditure, with $100 to $120 million expected annually, which could strain financial resources.
The REIT's strategy of asset recycling and development may expose it to market risks, particularly if property valuations fluctuate.
Warning! GuruFocus has detected 4 Warning Sign with ASX:HDN.
Q: Can you provide more details on the yields of recent acquisitions and disposals, particularly for Lutw and Leppington? A: (Paul Doherty, HDN Fund Manager) Lutw has a yield above 7%, and Leppington offers future growth potential. (Unidentified_1) We aim for a passing rent of more than 7% at Lutw, targeting over 8% in the next 12 months. Most disposals have been at the lower end of 6%, with Logan at 6.7% as an exit.
Q: Is the $100 million annual development CapEx a consistent run rate we should expect? A: (Unidentified_1) Yes, we aim for 100 to 120 million in activations per year. We are on track to hit the higher end of that range this year. Our pipeline has been replenished to 650 million, ensuring ongoing development opportunities.
Q: What was the contribution to first-half NOI from development completions? A: (Will Mc Micking, CFO) Earnings growth was about 4.5%, with rent reviews contributing 3.6% and approximately 1% from developments.
Q: How do you decide which assets to divest, and is there an appetite to divest below book value to fund the pipeline? A: (Unidentified_1) We generally divest traditional large format retail assets in regional locations with limited development upside. We focus on unlocking embedded development value and selectively improving our portfolio. Asset recycling will be limited in the upcoming half as we focus on executing developments.
Q: Can you provide details on the settlement dates for acquisitions and disposals, particularly Logan? A: (Unidentified_1) Logan is expected to settle between late April and mid-May. Leppington settled at the beginning of the year, and other trades are completed.
Q: What are the initial plans for the land purchased at Williams Landing? A: (Unidentified_1) We plan to extend the Woolworths-anchored center with leisure and lifestyle offerings, addressing a growing catchment area. We have received inquiries for 6,000 to 8,000 square meters of space, indicating strong demand.
Q: How should we think about the completions profile over the next year? A: (Unidentified_1) We aim to start 100 to 120 million in projects annually, with an average build time of 12 months. A 7% cash yield on cost is expected upon completion.
Q: How are you managing your liquidity profile with increased development spend? A: (Will Mc Micking, CFO) We remain disciplined in maintaining gearing at the midpoint of our target range. Asset recycling will fund developments, and there is no shortage of bank liquidity, as evidenced by our oversubscribed bank process last year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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