The HomeCo Daily Needs REIT (ASX: HDN) unit price has not performed well recently, rising just about 3% in the past year.
In fact, its current price is more than 5% below its initial public offering (IPO) price of $1.33 in November 2020.
This real estate investment trust (REIT) may have lost investor interest during the surge of growth shares in recent times. But as the global stock markets jitter, is now a good time to reconsider this cheap ASX REIT?
Let's find out!
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Stable business
HomeCo Daily REIT invests in neighbourhood retail and large-format retail assets. Its tenants include household names like Woolworths Group Ltd (ASX: WOW), Coles Group Ltd (ASX: COL) and Wesfarmers Ltd (ASX: WES).
Having such solid tenants, the ASX property company boasts more than 99% occupancy rate and rent collection.
HomeCo Daily Needs reported robust numbers in 1H FY24, with its property net operating income (NOI) increasing 4% from a year ago to $136.1 million. Its net tangible asset (NTA) was $1.44 per unit at the end of December 2023.
More recently, in June 2024, the company reported a 2% increase in its NTA as it booked a valuation gain. It also reaffirmed FY24 guidance for distribution per unit at 8.3 cents.
HomeCo Daily Needs CEO Sid Sharma highlighted the company's resilience, saying:
The positive revaluation gains for the half reflects HDN's high exposure to defensive and non-cyclical expenditure and megatrends driving tenant and customer demand for our assets.
Whilst the existing asset base is generating strong underlying net income growth, HDN's accretive development pipeline continues to create additional value for our unitholders.
Attractive valuations
The June update implies that its NTA is now at about $1.46 per unit, up 2% from its value in December 2023. Using today's unit price, this represents a price-to-book value of 0.84.
In other words, the REIT is trading at about a 16% discount on the value of its asset holdings, which seems attractive.
Using the company's DPS guidance of 8.3 cents for FY24, HomeCo Daily Needs currently offers a distribution yield of 7%.
Morgans also noted the stability and valuation merit of HomeCo Daily Needs, as my colleague James highlighted. Analysts at Morgans said:
The portfolio has resilient cashflows and continues to be a beneficiary of accelerating click & collect trends. +80% of tenants are national and ~75% of tenants offer click & collect reinforcing the importance of assets being able to support 'last mile logistics'.
Sites are also in strategic locations with strong population growth (+80% metro). HDN offers an attractive distribution yield and the development pipeline provides growth opportunities.
I tend to agree with the statement above. HomeCo Daily Needs can be a good addition to passive-income-focused investment portfolios at current prices, in my view.
The HomeCo Daily Needs REIT unit price was up 0.4% to $1.22 at the close of trading on Thursday.
