I held a neighbourhood REIT through 2008-9 and it is not something I wish to go through again. I was using it as a glorified term deposit of sorts for most of my savings. Absolute stupidity; but everything was going great, until it wasn't so great, Lehman Brothers failed, and liquidity dried up, then the capital raise and dilutions. The only thing I did right was not selling after a 90% price drop. Somehow it recovered, and kept paying distributions in the meantime, but it was not a pleasant experience. The REIT was eventually sold, later became CQR, and lives on to this day. I eventually sold in 2016 at break-even. To anyone thinking about attacking HDN or any other REIT hard at this time: You don't want to be driving to work, randomly seeing a car in front of you with a number plate displaying the ticker symbol of a company you've lost your shirt on, and having a bad day as a result!
I inherited this particular stock via AVN, which HDN bought/merged with in 2021. I bought AVN in April 2020 at a decent price, so my HDN entry price is very respectable (under $0.75). The thing I liked about AVN (Aventus) was its portfolio of Large Format Retail sites. Places like The Good Guys, Nick Scali, BCF, SuperCheap Auto, etc. The rent is actually very low compared to a Westfield type mall. I figured people like to look at / touch a fridge, mattress, fishing rod, etc. rather than buy it online. No Target, K-Mart, hairdresser, nail salon, clothing stores, etc. Excellent. I wasn't interested in another CQR-type debacle. Lots of social distancing in those big stores during Covid as well. High occupancy, low and growing rents. Perfect.
Half of HDN's assets are quality ex-Aventus LFR sites. They call the 'neighbourhood' sites (original HDN assets) 'daily needs'. Stuff like Dan Murphy and KFC. Then the health services, which for some reason are in this REIT and not the HMC (parent company) health REIT -- HCW (I guess they are just tenants/shops in the neighbourhood sites). This REIT should be reasonably safe in a down-turn and I am still a fan of the LFR sites. We have virtually full employment in Australia despite the rate rises. Also, all REITs in Australia seem more conservatively geared than in 2008.
It's fair to say I was not impressed with the merger, which seemed to be a way for the Aventus management and owner to cash-out. My plan was to sell at $1.50. The price briefly hit $1.55, at which time greed set in, as it tends to do. I started to believe broker forecasts and my own mis-placed sense of genius (never a smart move) and here we are in March 2023. Oh well....the money would only be in my bank account earning a few per cent anyway. The current 7% yield at $1.20 is very attractive. If interest rates have peaked (or are close to peaking) this isn't a bad deal. My plan has been to hold, and collect the quarterly distributions until it hits NTA of $1.52. I am sure when this happens, greed will again set in. If the price hits the 12 month low of $1.10 a nibble at that price will be tempting. With most REITs 25-30% below NTA there is a pretty good buffer there even if commercial property prices fall 10-15%.
The HDN WALE is low, but that could actually help during a high inflation period. Each time the rent is re-signed, it's quickly reviewed and no doubt quickly increased to market rates. I suspect a long WALE is more of a hinderance with high inflation. Our tenants are not the type of tenants to default either, and our sites are reportedly (by HDN) in desirable popluation catchment locations. HDN is also supposedly helping facilitate click-and-collect and hybrid online/offline business models and trying to obtain network effects from its sites -- something I do not understand or appreciate.
I agree with you about disliking externally-managed REITs. AVN was internally-managed and celebrated the fact... then sold the company to HomeCo. I think we lose about 0.5 cents per share each year in management fees, which go straight to HMC for the priviledge of being involved. Obviously I'd rather that amount in my pocket than HMC's
I could not agree more about not going overboard. My advice to anyone is to be careful with REITs. They are great while economic conditions are good, but they can quickly bite you hard if the sector turns against them.
Another thing I like about HDN is the low site coverage. Its buildings sit on large parcels of land. Instead of buying more and more properties to inflate revenue and management fees to HMC, they seem to be pouring money in to expanding the existing sites by utilising the free land. It feels conservative and cheaper to build-on to the existing sites, rather than taking on more and more debt at the wrong time in the cycle. I'll give HomeCo some credit here. So far, they appear to be prudent asset managers rather than using HDN to enrich HMC.
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