HomeCo Daily Needs REIT (ASX:HDN) FY25 Earnings Call Highlights: Strong Growth Amidst Rising ...

FFO per Unit: $0.088 for FY25, with guidance of $0.09 for FY26. DPU (Distributions per Unit): $0.085 for FY25, with guidance of $0.086 for FY26. Compound Average Growth Rate (CAGR) in FFO per Unit: 6.7% since IPO. Comparable NOI Growth: 4%. Leasing Spreads: 6%. Cash Collection Rate: 99% since IPO. Development CapEx Program: $327 million invested, valued at approximately $500 million. Portfolio Valuation: Improved to $4.92 billion. Total MAT Growth: 1.6%, with non-supermarket sales categories at 2.6% MAT. Net Tangible Assets: $1.47 per unit as of June 2025. Portfolio Cap Rate: 5.6% as of June 2025. Gearing: 35.2%, at the midpoint of the target range of 30% to 40%. Liquidity: $108 million as of June 2025.

Warning! GuruFocus has detected 6 Warning Sign with ASX:HDN.

Release Date: August 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

HomeCo Daily Needs REIT (ASX:HDN) delivered on its guidance with $0.088 per unit FFO and $0.085 DPU for FY25. The company has achieved a 6.7% compound average growth rate in FFO per unit since its IPO. HDN's operational performance is strong, with comp NOI growth of 4% and leasing spreads of 6%, maintaining high occupancy and rent collection rates. The development CapEx program has delivered $327 million of projects with a yield on cost of over 8.5%, exceeding the 7% target. HDN's portfolio valuation improved to $4.92 billion, reflecting income upside and moderate cap rate compression.

Negative Points

Interest costs have materially increased over the last three years, impacting financial performance. The payout ratio is reducing as distributions are right-sized to AFFO over time, which may affect investor returns. Supermarket sales have been impacted by goods deflation, industrial actions, and increased competition. The company faces a challenging interest rate environment, which has been a headwind for growth. There is a potential for increased maintenance CapEx and tenant incentives, which could impact future earnings.

Q & A Highlights

Q: Can you provide details on the Warilla Grove asset and opportunities to add value? A: Paul Doherty, HDN Fund Manager, explained that Warilla Grove is a strong asset with supermarket sales just under $100 million. They plan to acquire it at an initial 5.5% yield, aiming to grow it to over 7% quickly. Sid Sharma, Managing Director, added that the asset has great fundamentals and potential for significant yield and value uplift.

Q: How should we think about the run rate of disposals and valuation gains into FY26? A: Sid Sharma stated that they plan to align disposals with CapEx, suggesting a strategic approach to asset recycling and reinvestment.

Story Continues

Q: Can you provide insights on tenant trading performance into July and August? A: Paul Doherty noted strong growth, with June showing mid-single-digit growth, continuing into July and August. Sid Sharma added that consumer sentiment is positive, with anticipated interest rate cuts boosting retailer buoyancy.

Q: Your guidance seems conservative with 4% NOI growth. Are you expecting another jump in interest expense? A: Will McMicking, CFO, mentioned an assumption of 3.4% for unhedged debt. Sid Sharma added that while cost of debt is a marginal headwind, market conditions could turn it into a tailwind.

Q: With hedge debt reducing to 50%, do you have less visibility on interest expense? A: Will McMicking explained that the assumption for unhedged debt is 3.4%, with potential upside. HDN has absorbed sustained increases in cost of debt over the last three years, and they don't expect similar increases in the future.

Q: Can you discuss the development commencements guidance for FY26? A: Paul Doherty stated that the guidance of $80 million to $120 million reflects a mix of projects. The pipeline is $650 million, with larger projects expected in future years.

Q: Will you start providing an AFFO per share number, and what payout ratio are you targeting? A: Sid Sharma indicated that they plan to provide AFFO per unit as the portfolio matures, aiming for a payout ratio of 100% of AFFO over time.

Q: Can you provide a timeline for the Leppington and Williams Landing developments? A: Paul Doherty mentioned that these projects are expected to commence during FY26, with the $650 million pipeline expected to roll out over five to six years.

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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