Home Consortium’s Daily Needs REIT upgraded its full-year earnings and distribution guidance on Monday after snapping up a $222 million portfolio of large-format centres and convenience retail assets in Victoria, NSW and Queensland.
The acquisitions, which will be partly funded through an $88 million institutional equity raising at $1.61, were acquired on a weighted average cap rate of 5.8 per cent.
They will push the value of HDN’s portfolio to $1.8 billion and lift Victoria above NSW as the trust’s biggest market (33 per cent versus 31 per cent by value).
Rental income from the six fully leased assets – due to settle between September and December – is expected to boost funds from operations per share (earnings per share) by 3 per cent this financial year from the previously guided 8.3¢ per unit.
As a result, HDN upgraded its 2022 full-year distribution guidance to 8.25¢ from 8¢ per unit.
HDN, which collected 99 per cent of rent owed in the past financial year, was the only listed retail landlord to provide full-year earnings guidance in August.
HDN portfolio manager Paul Doherty said the acquisitions were consistent with the REIT’s strategy to secure “high-quality daily needs focused assets which complement its model portfolio and deliver stable and growing distributions”.
“The acquisition properties were all secured off-market and offer highly defensive and growing income streams via long-term leases to major national tenants, high occupancy and embedded rental growth through fixed annual rental reviews of 3.3 per cent.
All properties he said, offered future development potential given their low site coverage.
Headlining the portfolio is the Pakenham lifestyle centre on the Princes Highway in Melbourne’s south-east which HDN acquired from three Melbourne families for $98.5 million on a yield of 6 per cent.
Situated on a 7.6 hectare former Masters site and anchored by JB Hi-Fi, The Good Guys, Amart Furniture and Supercheap Auto, the large-format centre is due to settle in December.
A portion of the site is leased to the unlisted Home Consortium Investment Trust, owned by HomeCo’s founding shareholders. The trust had pre-emptive rights to acquire the whole site should it come up for sale. When it did come up for sale the trust elected to pass that benefit on to HDN.
In Melbourne’s west, HDN agreed to pay $55.4 million for a Coles-anchored neighbourhood centre that forms part of the town centre in the Woodlea housing estate being developed by Mirvac and VIP Properties. The deal was struck on a 5.25 per cent cap rate.
Two large-format regional properties – the Anaconda and Sydney Tools-anchored HomeCo Coffs Harbour and the Spotlight-anchored HomeCo Lismore – were purchased from Home Consortium for a combined $39.6 million on yields of 6.5 and 7 per cent.
Rounding out the portfolio is a Dan Murphy’s, KFC and Hungry Jacks-tenanted property in Armstrong Creek near Geelong, which adjoins a shopping centre owned by HDN (purchased for $21.5 million on a 5 per cent yield) and a freestanding Hungry Jacks in Upper Coomera on the Gold Coast located between the HomeCo Coomera City Centre and HomeCo Upper Coomera (bought for $7 million on a 3.8 per cent yield).
Alongside the equity raising, HomeCo established a distribution reinvestment plan, inclusive of the September quarter payout.
The fund manager, which retains a 24 per cent stake in HDN, will reinvest its full September quarter distribution in HDN units.
Macquarie Research, headed by analyst Stuart McLean, maintained an “outperform” recommendation for HDN and lifted its price target to $1.64 from a previous $1.60.
The analysts noted upcoming positive valuations, would help reduce gearing from 36 per cent (post-acquisition of the six properties) to 34.6 per cent.
HDN has a gearing target range of 30-40 per cent.
HDN units were put in a trading halt at $1.67 before the portfolio acquisition announcement.