Santos Limited (ASX: STO)
On October 2, 2024, Santos announced the signing of a mid-term LNG supply contract with TotalEnergies Gas & Power Asia Private Limited. This agreement entails supplying 20 LNG cargoes, approximately 0.5 million tonnes per annum, over three years, starting in Q4 2025.
This contract is a new relationship that builds on existing joint ventures. The oil-indexed nature of the contract complements other recent agreements, including long-term sales and purchase agreement with Hokkaido Gas in Japan and a mid-term contract with Glencore. The demand for high heating value LNG in Asia remains strong, particularly as countries focus on decarbonization.
Santos reported strong financial performance in its half-year results for 2024, highlighting a free cash flow from operations of US$1.1 billion, despite a 5% decrease from the previous year. The company achieved a record interim dividend of US$422 million, reflecting a 49% increase. Although sales revenue fell by 9% to US$2.7 billion, production remained stable at 44 million barrels of oil equivalent. Strong cash returns were generated because of the company’s disciplined operating model and the successful delivery of major projects, including the Moomba carbon capture and storage initiative and the Barossa Gas Project.
Santos declared a record interim dividend of US$422 million for the first half of 2024, marking a substantial 49% increase compared to the previous year. This translates to US13 cents per share, unfranked.
Looking ahead, Santos remains optimistic about its operational and financial trajectory. The company has reaffirmed its guidance for 2024, targeting production between 84 to 90 million barrels of oil equivalent and sales volumes between 87 to 93 million barrels. Significant progress is anticipated in major projects such as Moomba CCS, Barossa, and Pikka, with first oil expected in H1 2026 for Pikka. The company’s advancements and the disciplined low-cost operating model positions Santos to navigate various market scenarios while focusing on decarbonization efforts and sustainable growth. The company aims to maintain a robust production cost structure, with unit production costs projected between US$7.45 and US$7.95 per barrel of oil equivalent.
HomeCo Daily Needs REIT (ASX: HDN)
HDN has strategically positioned 85% of its portfolio in key metropolitan markets, enhancing its market reach. The top 10 tenants contribute 35% of the gross income. In FY24, HDN bolstered its portfolio by acquiring four high-quality daily needs assets valued at $293 million, located in rapidly growing metropolitan areas. The trust is expanding sites across major metro corridors, with average lease rentals significantly below the Australian national average.
In the past two years, the rise in click and collect facilities has driven increased demand for additional retail Gross Leasable Area (GLA), boosting the cash yield on cost by over 7%. HDN has added approximately 800 sqm of GLA dedicated to click and collect facilities within its existing portfolio. Recognizing this growing demand, HDN has proactively invested in future capital expenditures, acquiring around 30,000 sqm of excess land in FY24. With a future development pipeline exceeding $700 million and approximately $100-120 million in targeted commencements for FY25, the trust expects a Return on Invested Capital (ROIC) of around 7%.
The substantial portfolio value along with a land bank of 2.5 million and site coverage of just 36% and occupancy of >99% demonstrates strong fundamentals. The portfolio growth underpinned by high occupancy, a diverse tenant base, and a solid income stream supported by a moderate WALE. The fixed and CPI-indexed rental rates provide a good balance between stable and inflation-adjusted income. The high portfolio value and substantial landbank suggest significant potential for growth or development.
For FY24, HDN reported a Funds From Operations (FFO) per unit of 8.6 cents, totalling $178 million, which aligns with the guidance. The Distribution Per Unit (DPU) for FY24 was 8.3 cents, also consistent with expectations. The Net Tangible Assets (NTA) per unit stood at $1.44, unchanged from December 2023. This stability in NTA reflects strong underlying Net Operating Income (NOI) growth, which was partially offset by changes in capitalization rates.
HDN is presenting a strong forecast for FY25, driven by robust underlying property NOI growth and a significant pipeline of development completions. The forecast includes an 8.8 cents FY25 FFO/unit and an 8.5 cents FY25 DPU, with a projected 4.0% growth in comparable NOI. The rental growth projections remain solid, supported by high-quality, defensive cash flows and leading leasing metrics in the retail sector.
HomeCo Daily Needs REIT represents a stable investment opportunity within the Australian real estate sector, highlighted by a strong occupancy rate and a solid distribution yield.
Source: Company’s Report
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