HomeCo goes on $222m shopping spree

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THE HomeCo Daily Needs REIT (HDN) has gone shopping, spending $222.0 million on six retail assets.

The purchases represented a weighted average capitalisation rate of 5.78%, with the assets boasting 80% exposure to major national tenants, including Coles, JB Hi-Fi, Spotlight and Super Retail Group.

The portfolio of assets includes the newly completed Coles-anchored Woodlea Town Centre in Melbourne’s western growth corridor,  with 8,582sqm of GLA and a WALE of 10.7 years. HDN purchased the neighbourhood centre for $55.4 million, representing a 5.25% capitalisation rate.

Pakenham Lifestyle Centre in Melbourne’s southeast growth corridor, with HDN purchasing the large format retail centre for  $98.5 million large, representing a 6.00% cap rate.  The site has 30,716sqm of GLA and a WALE of 5.3 years.

The acquisitions also included two  NSW-based HomeCO LFR assets, the $22.4 million purchase of HomeCO Coffs Harbour and  the $17.2 million purchase of HomeCo Lismore, representing  cap rates of 6.50% and 7.00% respectively.

HomeCO Coffs Harbour boasts a 9,813sqm GLA and a WALE of 8.4 years, while HomeCo Lismore has a 8,784sqm GLA and a WALE of 5.4 years.

Finally, HDN made two adjoining property acquisitions, the $21.5 million Armstrong Creek Dan Murphy’s and Quick Service Restaurants in Victoria, representing a 5.00% cap rate and the $7.0 million Upper Coomera Hungry Jacks in Queensland, representing a cap rate of 3.86%.

The Armstrong Creek property has a 2,903sqm GLA and a WALE of 8.8 years, while the Coomera property has a 260sqm GLA, representing just 6% of the 4,050sqm land area and a WALE of 2.7 years.

“The acquisitions and placement announced today are consistent with HDN’s strategy to secure high-quality daily needs focused assets which complement our model portfolio and deliver stable and growing distributions,” said Paul Doherty, portfolio manager at HDN.

The acquisitions were all secured off-market and increase HDN’s exposure to several growth corridors and accretive brownfield development opportunities.

The assets also represent further secure income for HDN, via a WALE of 7.1 years, with an average occupancy of 99.5% and a fixed WARR of 3.3%.

“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%,” added Doherty.

HDN has undertaken a fully underwritten placement to raise $88.3 million, at an issue price of $1.61 per unit to partially fund the purchase of the assets and transaction costs.

The acquisitions and $88.3 million placement are anticipated to be 3% accretive to FY22 FFO per unit, with FY22 DPU guidance also being upgrade from 8.0 cents to 8.25 cents.

While pro forma gearing of 36.0% as of June 2021, was sitting in the group’s target range of 30-40%.

“Furthermore, the assets are strategically located in key growth corridors with low site coverage, which provides further upside potential from future accretive brownfield development,” concluded Doherty.

HomeCo’s purchases reaffirm the surprising recovery in retail transactions, according to Real Capital Analytics’ head of analytics Pacific Benjamin Martin Henry.

The REIT exceeded its PDS forecast for the full-year, growing its portfolio of large format, convenience retail, and healthcare assets by 82% to nearly $1.6 billion.

While also reaching agreement with PDG Corporation to collaborate in developing healthcare precincts, following the successful IPO roadshow for its new healthcare property trust.