The HomeCo Daily Needs REIT (ASX: HDN) share price won't be going anywhere on Monday.
This morning the convenience retail-focused real estate investment trust (REIT) requested a trading halt.
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Why is the HomeCo Daily Needs share price in a trading halt?
The HomeCo Daily Needs share price was placed in a trading halt this morning so the company could undertake a capital raising.
According to the release, the company is raising $88.3 million via a fully underwritten placement at an issue price of $1.61 per share. This represents a 3.6% discount to the current HomeCo Daily Needs share price.
Why is the company raising funds?
The company is raising capital to partially fund the acquisition of a 100% interest in six daily needs assets for a total purchase price of $222 million. This represents a weighted average acquisition capitalisation rate of 5.78%.
The release explains that these assets have 80% exposure to major national tenants. This includes retailers such as Coles Group Ltd (ASX: COL), JB Hi-Fi Limited (ASX: JBH), and Super Retail Group Ltd (ASX: SUL).
In addition, management notes that the acquisition increases exposure to strategic growth corridors and accretive brownfield development opportunities.
Another positive is the highly secure income these assets provide. This is via long weighted average lease expiries (WALE) of 7.1 years, a 99.5% occupancy rate, and a fixed WARR of 3.3%.
HomeCo Daily Needs' Fund Portfolio Manager, Paul Doherty, commented: "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."
"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%. Furthermore, the assets are strategically located in key growth corridors with low site coverage, which provides further upside potential from future accretive brownfield development."
Guidance upgrade
Also potentially giving the HomeCo Daily Needs share price a boost is management's guidance. It is expecting the acquisitions to be accretive to its funds from operations (FFO) in FY 2022.
Management is forecasting 3% accretion to its FFO per share in FY 2022. As a result, it has lifted its distribution guidance from 8 cents per share to 8.25 per share.
Based on the latest HomeCo Daily Needs share price of $1.66, this will mean a yield of 5% for investors.
