HomeCo’s Asset Recycling and Development Pipeline Key to Navigating Market Risks

Solid Financial Performance Amid Strategic Growth

HomeCo Daily Needs REIT (ASX: HDN) has reported a resilient first half for FY25, maintaining funds from operations (FFO) per unit at 4.3 cents and delivering a 2.5% increase in distributions per unit (DPU) to 4.3 cents. This steady income growth reflects the REIT's focus on defensive, daily needs retail assets, which continue to underpin stable cash flows despite broader market uncertainties.

The REIT’s portfolio valuation rose modestly to $4.8 billion, supported by strong leasing metrics including occupancy rates exceeding 99% and a weighted average lease expiry of 4.8 years. These metrics highlight the quality and resilience of HomeCo’s asset base, which is diversified across neighbourhood, large format retail, and health and services sectors.

Active Portfolio Management and Strategic Asset Recycling

HomeCo has actively recycled capital, disposing of approximately $730 million in assets at yields around 6%, while acquiring about $500 million in higher-yielding neighbourhood assets targeting 7% returns. This rebalancing aligns with the REIT’s model portfolio strategy to enhance defensive income streams and improve tenant mix quality.

Notably, the acquisition of high-quality daily needs assets in metropolitan growth corridors, such as Leppington and Lutwyche, positions the portfolio for long-term growth. The REIT also holds a substantial landbank of 2.4 million square meters, offering significant development upside.

Development Pipeline and Future Growth Prospects

HomeCo is targeting $100 to $120 million in development commencements for FY25, with projects pre-committed and expected to deliver returns on invested capital (ROIC) of approximately 7%. Key developments include expansions at Tuggerah and Castle Hill in New South Wales, and the Armstrong Creek Town Centre in Victoria, which is supported by strong tenant demand, including Woolworths.

The REIT’s development strategy focuses on tenant-led expansions and remixing existing centres to enhance value, as demonstrated by the Southlands Boulevarde project in Western Australia, which has already seen a 30% valuation uplift since acquisition.

Robust Balance Sheet and Capital Management

HomeCo maintains a solid balance sheet with gearing at 36%, expected to reduce to 34.6% following the contracted sale of the Logan large format retail asset. Liquidity remains strong at $75.3 million, supported by a well-hedged debt profile with nearly 80% of drawn debt hedged against interest rate fluctuations. The weighted average cost of debt rose slightly to 4.7% but remains manageable within the REIT’s financial framework.

This financial strength enables HomeCo to continue funding its development pipeline and pursue accretive acquisitions, while maintaining flexibility to navigate evolving market conditions.

Sustainability and ESG Commitments

HomeCo is advancing its sustainability agenda, with solar PV installations active at 31 sites and a target to exceed 65% of feasible sites by FY25. The REIT also maintains a 50% gender diversity rate on its independent board and has been recognised as a 2025 ESG Regional Top-Rated company by Morningstar Sustainalytics. These initiatives reflect a growing emphasis on environmental, social, and governance factors as integral to long-term value creation.

Looking ahead, HomeCo’s strategy to focus on daily needs infrastructure, combined with disciplined capital management and a strong development pipeline, positions it well to deliver sustainable income growth and portfolio appreciation.