HomeCo Daily Needs REIT delivered an FY26 result that was broadly in line at the FFO level, but they flagged a much less attractive funding backdrop and softer FY27 earnings guidance. The shares were sold off accordingly, with investors increasingly rewarding REITs that carry lower gearing and cleaner hedge books.
The core portfolio remains resilient, but higher debt costs are now flowing directly into earnings. HDN’s average cost of debt has risen to around 5%, while new hedges have been locked in at materially higher rates. Gearing has also increased to 35.7%, which is towards the upper end of the sector and leaves less room for error.
The bigger disappointment was FY27 guidance. Management guided to FFO of 8.8c per unit, implying a decline of around 2% on FY26, at a time when many REITs are expected to deliver at least modest earnings growth.
That said, there are some important offsets:
- Management has received A$400–500 million of unsolicited offers for assets across the portfolio, reportedly around or above book value.
- Asset sales could materially reduce gearing and improve the cost of capital.
- A pause in new development starts should also help preserve balance-sheet flexibility.
- Management believes the current earnings pressure should moderate beyond FY27 if interest rates stabilise or decline.
The unsolicited interest is particularly notable. It suggests the underlying assets are carrying more value than the share price currently implies and gives HDN a credible path to de-lever without being forced into distressed sales.
MM’s view: The result was disappointing from an earnings-growth perspective, but the issue is more balance-sheet and funding related than operational. The portfolio itself remains sound, but the combination of higher hedge costs and elevated gearing means FY27 will be a softer year than investors had hoped.
We think the market is right to demand a more conservative balance sheet, and asset sales should be a priority. If management can monetise assets around book value and bring gearing back towards the low end of its target range, the investment case improves materially. For now, however, the lack of near-term FFO growth means we would remain selective despite the valuation support.
