Home Consortium: Ready to accelerate AUM
About the author:
- Author name:
- By Fiona Buchanan
- Job title:
- Director of Research, Senior Analyst
- Date posted:
- 26 August 2021, 2:00 PM
- Sectors Covered:
- Property, AREITS
- HMC has transitioned to a capital light model (total AUM at $2.5bn) and is in a strong position to grow AUM across both its current vehicles and new opportunities.
- With the impending IPO of HealthCo (HCW) on 6 September, HMC will execute on another significant strategic milestone. Post HCW listing, HMC will have ~$950m of liquidity available to support its growth.
- FY22 FFO guidance has been set implying +35% growth on the pcp. DPS is 12cps.
- HMC expects to be very active on dealflow with management confident it will reach +$5bn in AUM by the end of 2022 and +$10bn by the end of 2024.
- HMC is also considering simplifying its structure via a de-stapling (subject to vote).
- We retain an Add rating with a revised target price of (login to view).
Solid FY21 result with strong growth in AUM flagged
FY21 result – in line with guidance with FFO of 13.1c ($35.8m) +51% on FY20 pro forma FFO of 8.7c. Final DPS = 6c (50% franked).
FY22 guidance – pre-tax FFO of at least 18.5c (+35% on the pcp/+1.7% MorgansE); DPS guidance of 12c (65% pre-tax payout ratio).
AUM targets – current external AUM is $2.2bn and HMC is confident it will hit +$5bn by end of CY22 and +$10bn by end of CY24 (double previous expectations).
Evolution to a pure funds management model
Earnings in FY21 were primarily sourced via direct property/rent; co-investment income (HDN); and funds management fees (HDN) post the listing of HDN in November 2020 (current HDN AUM = $1.6bn).
IPO of HealthCo (HCW) - $650m raised with HCW due to list on 6 September. Post listing, HMC will be in a net cash position with ~$950m of liquidity (including a $375m debt facility) which will be deployed into new opportunities.
HMC continues to own $208m in direct property assets and co-investments valued at $432m comprising a 27% co-investment in HDN and a 20% co-investment in HCW. The longer-term strategy is to target 10-15% co-investment positions.
By the end of 2021 HMC is also proposing to establish its unlisted wholesale healthcare fund ($500m initial raise moving to $1bn). It will be seeded with a 50% interest in the Camden and Proxima projects. We expect HCW and the wholesale fund to be a key driver of AUM growth in the near term.
Forecast and valuation update – FY22 a transitional year
We adjust our forecasts for the result, and incorporate the IPO of HCW and AUM growth targets for CY22. We also assume the remaining direct property assets are divested over the next 12-18 months. FY22/23 FFO moves +1.7%/+13%.
Management has also stated it will take a flexible approach to future distributions depending on its capital needs. We reduce our payout ratio to 65% from 85%.
We expect the key swing factor to forecasts will relate to the timing and quantum of funds deployed, however note management has visibility on near-term transactional activity across HDN and HealthCo. We also flag the potential destapling event (currently $11m in tax losses) to simplify the corporate structure.
Post changes and a roll-forward, our blended DCF/SOTP valuation is (login to view) and we continue to set our TP in line with our DCF valuation (login to view).
Retain Add rating; backing management to execute
HMC continues to deliver on its strategy to grow its FM platform and has accelerated its AUM targets materially highlighting the confidence of management to originate dealflow as well as leverage access third party capital.
While the key focus is currently on real estate, other future growth areas may include alternative assets (eg private equity, infrastructure and credit).
S&P/ASX 300 index inclusion; execution of strategic initiatives/AUM targets.
General risks include execution on the development pipeline and strategic goals; unknown impacts from COVID; tenant default/non-renewal; a slowdown in deal flow impacting management fee income; and lower asset values.
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