HOMECO DAILY NEEDS REIT - Proxy Solicitation & Information Statement 2021

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Managed by HMC Funds Management Limited (ACN 105 078 635; AFSL 237257) as responsible entity of the HomeCo Daily Needs REIT (ARSN 645 086 620)

ASX RELEASE

18 May 2021

NOTICE OF EXTRAORDINARY GENERAL MEETING 2021

HMC Funds Management Limited as responsible entity of HomeCo Daily Needs REIT (ASX: HDN) advises that an Extraordinary General Meeting of its unitholders will be held at 11.00am (Sydney time) on Wednesday, 16 June 2021 ( Meeting ).

A copy of the Notice of Extraordinary General Meeting and Explanatory Memorandum in relation to the business to be conducted at the Meeting is attached to this announcement.

Unitholders are encouraged to carefully review and consider the Notice of Extraordinary General Meeting and Explanatory Memorandum and are urged to attend the Meeting via the live webcast or vote by lodging the Proxy Form.

The Meeting will be held in virtual format only. Unitholders may be present virtually and vote through an online platform at https://agmlive.link/HDN21.

The online platform will allow unitholders to participate in the Meeting and vote during the Meeting. Further details on how to participate online is set out in the Virtual Meeting Online Guide available at https://hdn.home-co.com.au/Investor-Centre/.

Even if unitholders intend to attend the Meeting online, HDN encourages unitholders to vote by completing and submitting a proxy form as early as possible. Unitholders may use the Proxy Form attached to the Notice of Meeting or online at https://linkmarketservices.com.au/. Please note that your votes need to be received by 11.00am (Sydney time) on Monday, 14 June 2021.

In the event that it is necessary for any further updates, information will be available on HDN’s website (https://hdn.home-co.com.au/Investor-Centre/) and lodged with ASX.

-ENDS-

For further information, please contact:

INVESTORS

Misha Mohl Will McMicking Head of Strategy and Investor Relations Group Chief Financial Officer +61 422 371 575 +61 451 634 991 [email protected] [email protected]

MEDIA

John Frey Corporate Communications +61 411 361 361 [email protected]

Authorised for release by the Board of the Responsible Entity

About HomeCo Daily Needs REIT

HomeCo Daily Needs REIT is an Australian Real Estate Investment Trust listed on the ASX with a mandate to invest in convenience-based assets across the target sub-sectors of Neighbourhood Retail, Large Format Retail and Health & Services. HomeCo Daily Needs REIT aims to provide unitholders with consistent and growing distributions.

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Notice of Extraordinary General Meeting

HMC Funds Management Limited (ACN 105 078 635; AFSL 237257) as responsible entity of HomeCo Daily Needs REIT (ARSN 645 086 620)

Wednesday, 16 June 2021 at 11.00 am (Sydney time)

This Notice and the accompanying Explanatory Memorandum should be read in its entirety. If Unitholders are in doubt as to how they should vote, they should seek advice from their stock broker, investment advisor, accountant, solicitor or other professional adviser prior to voting.

Unitholders are urged to attend via the live webcast at https://agmlive.link/HDN21 or vote by lodging the Proxy Form attached to the Notice.

Letter from the Chairman

18 May 2021

Dear Unitholder,

On behalf of the Board, we are pleased to invite you to participate in an extraordinary general meeting of HomeCo Daily Needs REIT (ASX: HDN) ( HDN ), which will be held at 11.00 am (Sydney time) on Wednesday , 16 June 2021 .

Unitholders will be asked to approve resolutions that relate to two important transactions for HomeCo Daily Needs REIT.

The first resolution is an ordinary resolution to approve the acquisition of a portfolio of seven large format retail assets from Home Consortium (ASX: HMC) located in Marsden Park (NSW), Box Hill (VIC), South Morang (VIC), Upper Coomera (QLD), Mackay (QLD), Toowoomba (QLD) and Bundall (QLD) (the Acquisitions ). The Acquisitions are consistent with HDN’s strategy to provide Unitholders with stable and growing distributions and substantially improve HDN’s portfolio quality, scale and diversification. These Acquisitions will be partially funded from the proceeds of HDN's recently announced underwritten Entitlement Offer which raised approximately $265 million.

The second resolution is a special resolution to approve the terms of a selective buy-back of up to 10,231,213 Units held by Home Consortium Limited (the Selective Buy-back ). The number of Units bought back will be the same as the number of Bonus Units issued under the Entitlement Offer (where Unitholders and other investors who participated in the Entitlement Offer will receive additional Units for nil consideration, provided they meet the eligibility criteria).

The Notice and Explanatory Memorandum in the following pages provide further details on both Resolutions and we urge you to read the contents carefully. Unitholders should also refer to the announcements and Investor Presentation lodged with ASX on 19 April 2021 for further information relating to the Acquisitions and Entitlement Offer.

The Independent Expert has also concluded that the Acquisitions (the subject of Resolution 1) are fair and reasonable to Unitholders not associated with Home Consortium.

All Directors eligible to make a recommendation to Unitholders (being all the independent non-executive Directors) recommend Unitholders vote in favour of both the Resolutions. Each Director eligible to vote on the Resolutions (being all the Directors) intends to vote all the Units he or she holds or that are controlled by him or her in favour of all Resolutions proposed.

Two directors, David Di Pilla and Greg Hayes, have abstained from making a recommendation to Unitholders for Resolutions 1 and 2 due to a disclosed interest in the transactions. For further information, see Sections 2.12 and 3.6 of the Explanatory Memorandum entitled "Directors' interests".

The Meeting will be held virtually as proposed in this Notice, ensuring that all Unitholders have a reasonable opportunity to participate in the Meeting. Information regarding this process is set out in this Notice and accompanying Explanatory Memorandum.

On behalf of the Board we thank you for your consideration of the resolutions.

Yours faithfully

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Simon Shakesheff

Chairman

Notice of Extraordinary General Meeting

Notice is hereby given that the Extraordinary General Meeting of unitholders of HomeCo Daily Needs REIT (ARSN 645 086 620) ( HDN ) (the Meeting ) will be held on Wednesday, 16 June 2021 at 11.00 am (Sydney time).

The Meeting will be held in virtual format only. Unitholders may be present virtually and vote through an online platform provided by the Registry, Link Market Services, at https://agmlive.link/HDN21. Further information on how to do this is set out in this Notice and the Virtual General Meeting Online Guide available on the HDN website, which has also been lodged with ASX.

The online platform will provide a reasonable opportunity for Unitholders to participate, and the Meeting will operate on the basis that such participation will constitute Unitholders being present at the Meeting for all purposes.

Voting on all resolutions will occur by way of poll, and the online platform will enable Unitholders to lodge a vote in real time. On a poll, Unitholders have one vote for each Unit they hold.

The Explanatory Memorandum provides additional information on matters to be considered at the Meeting. The Explanatory Memorandum and the Proxy Form constitute part of this Notice.

The Directors have determined that the persons eligible to vote at the Meeting are those who are registered as Unitholders on Monday, 14 June 2021 at 7.00pm (Sydney time).

Terms and abbreviations used in this Notice and the Explanatory Memorandum are defined in Schedule 1.

Business of the Meeting

1. Resolution 1 – Approval of the Acquisitions

To consider and, if thought fit, to pass the following resolution as an ordinary resolution :

" That the acquisition by HMC Funds Management Limited as responsible entity of HomeCo Daily Needs REIT (or its related entities/nominees) of the LFR Portfolio from Home Consortium (or its related entities), on the terms and conditions summarised in the Explanatory Memorandum be approved for the purposes of Listing Rule 10.1 and for all other purposes. "

Independent Expert's Report

Unitholders should carefully consider the Independent Expert's Report contained in Schedule 2 of the Explanatory Memorandum. The Independent Expert has concluded that the Acquisitions are fair and reasonable to the Unitholders not associated with Home Consortium.

Voting Exclusion

HFML will disregard any votes cast in favour of this Resolution by or on behalf of Home Consortium and any other person who will obtain a material benefit as a result of the Acquisitions (except a benefit solely by reason of being a holder of Units) or any of their associates (including HMC Funds Management Limited).

However, this does not apply to a vote cast in favour of the Resolution by:

(a) a person as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with the directions given to the proxy or attorney to vote on the Resolution in that way;

(b) the Chair as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the Chair to vote on the Resolution as the Chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(i) the beneficiary provides written confirmation to the holder that the beneficiary is not excluded from voting and is not an associate of a person excluded from voting, on the Resolution; and
(ii) the holder votes on the Resolution in accordance with the directions given by the beneficiary to the holder to vote in that way.

2. Resolution 2 – Approval of the Selective Buy-Back

To consider and, if thought fit, to pass the following resolution as a special resolution :

" That:
(a) the terms and conditions of the Selective Buy-Back Agreement between HMC Funds Management Limited as responsible entity of HomeCo Daily Needs REIT and Home Consortium; and
(b) HMC Funds Management Limited as responsible entity of HomeCo Daily Needs REIT conducting an off-market selective buy-back of up to 10,231,213 Units from Home Consortium Limited and the subsequent cancellation of those Units,

be approved on the terms and conditions summarised in the Explanatory Memorandum."

Voting Exclusion

HFML will disregard any votes cast in favour of this Resolution by or on behalf of Home Consortium or any of its associates (including HMC Funds Management Limited).

However, this does not apply to a vote cast in favour of the Resolution by:

(a) a person as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with the directions given to the proxy or attorney to vote on the Resolution in that way;
(b) the Chair as proxy or attorney for a person who is entitled to vote on the Resolution, in accordance with a direction given to the Chair to vote on the Resolution as the Chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:
(i) the beneficiary provides written confirmation to the holder that the beneficiary is not excluded from voting and is not an associate of a person excluded from voting, on the Resolution; and
(ii) the holder votes on the Resolution in accordance with the directions given by the beneficiary to the holder to vote in that way.

Dated: 18 May 2021

By order of the Board

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Andrew Selim

Company Secretary HMC Funds Management Limited as responsible entity of HomeCo Daily Needs REIT

Explanatory Memorandum

1. Introduction

1.1 Overview

This Explanatory Memorandum has been prepared for the information of Unitholders in connection with the business to be conducted at the Meeting to be held via the live webcast at https://agmlive.link/HDN21 on Wednesday, 16 June 2021 at 11.00 am (Sydney time).

This Explanatory Memorandum forms part of the Notice which should be read in its entirety. This Explanatory Memorandum contains the terms and conditions on which the Resolutions will be voted. Terms and abbreviations used in this Explanatory Memorandum are defined in Schedule 1.

1.2 Chair

HFML has appointed Simon Shakesheff, its Chairman, as the Chair of the Meeting.

1.3 Eligibility to vote

Your vote is important. You are encouraged to attend and vote at the Meeting. If you cannot attend the Meeting, you should complete the Proxy Form accompanying the Notice. Please read the instructions on the Proxy Form carefully.

Unitholders will be eligible to vote at the Meeting if they are registered holders of Units on Monday, 14 June 2021 at 7.00pm (Sydney time). If you are in any doubt as to whether you are entitled to vote, please notify us immediately.

1.4 Voting methods

How to vote prior to the Meeting — Unitholders may lodge a direct vote or appoint a proxy online at www.linkmarketservices.com.au or by submitting a voting form to the Registry. Please note that your votes need to be received by no later than 11.00 am (Sydney time) on Monday, 14 June 2021. To log in, you will need your holder identifier (SRN, HIN or employee identification) and postcode.

How to be present virtually and vote at the Meeting — The Meeting will be held in virtual format only. Unitholders will have the opportunity to be present virtually via a live webcast and will be able to vote electronically via an online platform (including lodging a vote in real time and asking questions online). You can access the platform at https://agmlive.link/HDN21. To log in, you will need your holder identifier (SRN, HIN or employee identification) and postcode.

Voting will be available between the commencement of the Meeting (11.00 am (Sydney time) on Wednesday, 16 June 2021) and the closure of voting as announced by the Chair during the meeting.

More information regarding online participation at the Meeting including how to vote and ask questions is available in the Virtual General Meeting Online Guide. The Guide is available on the HDN website and has been lodged with the ASX.

1.5 Voting

Attorneys

A Unitholder may appoint an attorney to vote on his or her behalf. For an appointment to be effective for the Meeting, the instrument effecting the appointment (or a certified copy of it) must be received by HFML at its registered office or by the Registry by no later than 11.00 am (Sydney time) on Monday, 14 June 2021.

Corporate representatives

A body corporate which is a Unitholder, or which has been appointed as a proxy, may appoint an individual to act as its representative at the Meeting in accordance with section 250D of the Corporations Act.

If you wish to appoint a body corporate as your proxy, you must specify on the Proxy Form:

the full name of the body corporate appointed as proxy; and
the full name or title of the individual representative of the body corporate who will be present virtually at the Meeting.

Representatives should provide satisfactory evidence of their appointment including any authority under which that appointment is signed (unless previously given to HFML).

1.6 Voting by proxy

A Unitholder entitled to be present virtually and vote at the Meeting is entitled to appoint a proxy. A proxy need not be a Unitholder.

The appointment of one or more proxies will not preclude a Unitholder from being present virtually and voting.

A Unitholder entitled to cast more than one vote on a Resolution may appoint two proxies, in which case the Unitholder should specify the proportion or number of votes that each proxy is appointed to exercise. If no proportions or numbers are specified, each proxy may exercise half of the Unitholder's votes.

Unitholders are encouraged to direct their proxies how to vote on each resolution by selecting the ‘for’, ‘against’ or ‘abstain’ box for each item on the proxy form. If a proxy chooses to vote, then he/she must vote in accordance with the directions set out in the proxy appointment form.

If the Chair of the Meeting is appointed, or taken to be appointed, as a proxy but the appointment does not direct the proxy how to vote on a resolution, then the Chair intends to exercise the relevant Unitholder's votes in favour of the relevant Resolution (subject to the other provisions of these notes, including any voting exclusions set out in the Notice).

In order for the proxy appointment to be valid, completed Proxy Forms (together with any authority under which the proxy was signed or a certified copy of the authority) must be returned before 11.00 am (Sydney time) on Monday, 14 June 2021 in one of the following four ways:

by mail: Locked Bag A14, SYDNEY SOUTH, NSW 1235
online at : www.linkmarketservices.com.au
by facsimile : (+612) 9287 0309
by hand (within business hours) : 1A Homebush Bay Drive, Rhodes NSW 2138; or Level 12, 680 George Street, SYDNEY, NSW 2000.

Proxy Forms received later than this time will be invalid.

1.7 Asking questions at the Meeting

Unitholders' questions through an online platform are welcome at the Meeting. Unitholders are encouraged to submit questions before the meeting online at www.linkmarketservices.com.au by logging into your holding, selecting voting and then ‘ask a question’. To submit a question during the Meeting, go to https://agmlive.link/HDN21 and click on "Ask a Question". Submitting questions in

advance will not stop any Unitholder from asking questions at the Meeting through an online mechanism should they wish to do so, but will facilitate a considered reply.

Questions should be received by no later than 11.00 am (Sydney time) on Monday, 14 June 2021. Please note that individual responses will not be sent.

Business of the Meeting

2. Resolution 1 – Approval of the Acquisitions

2.1 Overview

On 19 April 2021, HDN announced that it had agreed to acquire a portfolio of seven large format retail assets from Home Consortium and its related entities (the Acquisitions ). The portfolio of properties to be acquired are located in Marsden Park (NSW), Box Hill (VIC), South Morang (VIC), Upper Coomera (QLD), Mackay (QLD), Toowoomba (QLD) and Bundall (QLD) ( LFR Portfolio ). Details for each of these properties are set out in Section 2.2.

In addition to the LFR Portfolio, HDN also announced the proposed acquisition of a newly completed Coles-anchored neighbourhood centre located in Armstrong Creek (VIC) from an unrelated third party. The purchase price was $55.6 million, representing a 6.0% cap rate. The acquisition of Armstrong Creek Town Centre was not subject to any Unitholder approval, and completed on 29 April 2021.

The total purchase price for the LFR Portfolio is $266.4 million, which will be funded from a combination of existing cash reserves, proceeds raised under the Entitlement Offer (which was announced on the same date as the Acquisitions) and undrawn debt facilities. Refer to Section 2.3 for further details. In addition, transaction costs of approximately $18.6 million will be incurred, although these are payments made to parties unrelated to HDN, such as stamp duty and transaction costs, and includes those associated with the acquisition of Armstrong Creek Town Centre.

The Acquisitions represent an important step in increasing HDN's model portfolio sub-sector weighting to LFR to 35% following completion.

2.2 Summary of the LFR Portfolio

The material terms of the Acquisitions are broadly consistent for all properties within the LFR Portfolio and which are set out below:

Material Term	Description
Conditions Precedent	Completion of the acquisition is conditional upon:  HDN completing an equity capital raising of at least $265 million by way of an accelerated pro rata non- renounceable entitlement offer; and  the requisite Unitholder majorities approving the Acquisitions, the subject of Resolution 1.
Completion	Subject to the satisfaction of the conditions, completion will take place on 1 July 2021, or such other date as agreed between the parties.
Termination	If the conditions are not satisfied before 19 October 2021 (being 6 months after the date of the agreements), HMC may rescind from the sale agreements and any deposit paid will be refunded to HDN.

Material Term	Description
Other	The property sale agreements contain other representations, warranties, undertakings and indemnities given by each of the parties standard for agreements of their nature.

A summary of each LFR Portfolio asset to be acquired as part of the Acquisitions, is outlined below:

Table 1: Summary of LFR Properties

Property	State	Dec-20 valuation	Acquisition	Jun-21 valuation2	Jun-21 cap rate2
			cap rate1
Marsden Park	NSW	$52.0m	6.00%	$57.3m	5.50%
Box Hill	VIC	$49.5m	6.75%	$57.5m	6.00%
South Morang	VIC	$32.4m	7.00%	$35.7m	6.25%
Upper Coomera	QLD	$45.3m	6.50%	$38.5m	6.00%
Mackay	QLD	$26.3m	7.50%	$27.2m	7.00%
Toowoomba	QLD	$29.1m	7.25%	$32.0m	6.50%
Bundall	QLD	$31.8m	7.00%	$35.5m	6.50%
TOTAL		$266.4m	6.75%	$283.7m	6.15%

Property	State	GLA (sqm)	Site coverage %	Occupancy3	WALE (years)4
Marsden Park	NSW	11,924	34%	100%	5.1
Box Hill	VIC	13,911	34%	100%	9.6
South Morang	VIC	11,417	32%	100%	5.6
Upper Coomera	QLD	11,261	33%	94%	7.0
Mackay	QLD	11,929	11%	99%	5.5
Toowoomba	QLD	11,360	35%	97%	5.8
Bundall	QLD	10,458	64%	100%	5.4
TOTAL		82,260	27%	99%	6.5

Notes :

Purchase price aligns to 31 December 2020 portfolio valuation. Excludes stamp duty and transaction costs.
Book value based on independent valuation in respect of the year ended 30 June 2021. Currently in draft form pending finalisation at year end.
By GLA for operating assets only. Based on signed leases and signed Memorandum of Understandings.
By gross income for signed leases and signed Memoranda of Understanding as at 30 June 2021.

2.3 Funding the Acquisitions

On 19 April 2021, HDN announced the Entitlement Offer, which consisted of an underwritten accelerated 1 for 2.36 non-renounceable entitlement offer of New Units at an offer price of $1.295 per New Unit, to raise gross proceeds of approximately $265 million. The institutional component of the Entitlement Offer completed on 20 April 2021 and raised approximately $90 million. The retail component of the Entitlement Offer closed on 7 May 2021 and raised approximately $175 million, which includes HMC's commitment to take up its full entitlement of $70.6 million (from its 26.6% investment in HDN), which settled as part of the retail component of the Entitlement Offer.

The Entitlement Offer includes the issue to each eligible Unitholder or investor who was issued New Units with up to 1 Bonus Unit for every 20 New Units issued, provided the eligible Unitholder or investor holds a number of Units in excess of their Record Date Holding on 16 August 2021, being 3 months after the expected date of issue of New Units under the retail component of the Entitlement Offer ( Bonus Unit Determination Date ). The Bonus Units will be issued for nil consideration and the issue is being undertaken in conjunction with a selective buy-back of Units from HCL, which has agreed to sell back to HFML a number of Units it holds for nominal consideration, subject to Unitholder approval of Resolution 2. The number of Units to be bought back will be equal to the number of Bonus Units that are issued, as determined on the Bonus Unit Determination Date.

The Entitlement Offer was undertaken to partially equity fund the acquisitions of the LFR Portfolio and Armstrong Creek Town Centre. Further details of the freehold acquisitions are included in the ASX announcement and Investor Presentation lodged by HDN with ASX on 19 April 2021 (available at https://www2.asx.com.au/). The acquisition of Armstrong Creek Town Centre did not require Unitholder approval and completed on 29 April 2021.

The decision to undertake the Entitlement Offer in advance of the Meeting to consider the Acquisitions was based on a number of factors, including:

(a) Funding certainty : The Entitlement Offer was underwritten, providing certainty of the availability of the majority of the funding for the acquisitions of the LFR Portfolio and Armstrong Creek Town Centre.
(b) Reduced execution risk : Undertaking the Entitlement Offer in advance of the Meeting avoids the challenge associated with raising equity after the announcement of a major transaction. Any delays in undertaking the Entitlement Offer may have exposed HDN to market movements which could potentially lead to the Entitlement Offer being conducted at a lower price, which would have a negative impact on Unitholders, and certain financial metrics of the acquisitions of the LFR Portfolio and Armstrong Creek Town Centre, due to the greater number of New Units issued.

2.4 Financial impact

The acquisition of the LFR Portfolio and Armstrong Creek Town Centre, and the Entitlement Offer, are anticipated to be accretive to FFO/Unit for the 2022 financial year and result in FFO guidance of at least 8.3 cpu ($57.0m) for the 2022 financial year, a 24% increase versus the financial year 2021 FFO/Unit of 6.7 cpu summarised in HDN's PDS dated 16 October 2020 (representing 3.9 cpu annualised).

This is expected to result in:

(a) 1.0% accretion to pre-transaction FFO/Unit forecast for the 2022 financial year; and

(b) 4.1% accretion to pre-transaction FFO/Unit forecast for the 2022 financial year (assuming 31 December 2020 pro-forma gearing maintained at 34.5%).

HDN's FFO guidance for the 2021 financial year is increased to $21.0 million following the expected completion of the Armstrong Creek Town Centre acquisition. However, due to the timing difference between the Entitlement Offer and the expected settlement date of the LFR Portfolio acquisition in early July 2021, the transaction is FFO/Unit dilutive in the 2021 financial year.

HDN's 31 December 2020 NTA/Unit of $1.34 is expected to decrease to $1.31 NTA/Unit post-transaction reflecting the impact of the Entitlement Offer and stamp duty / transaction costs.

HDN's FY21 distribution of 1.8 cpu for the fourth quarter of the 2021 financial year is reconfirmed. The tax-deferred portion of that distribution will decrease to below 80% given the additional Units on issue following the Entitlement Offer. A final calculation of the tax deferred portion of that distribution will be provided with the HDN annual results in August 2021.

2.5 Advantages and disadvantages of the Acquisitions

The anticipated benefits to HDN of the Acquisitions are outlined below:

(a) The LFR Portfolio is being acquired at approximately a 6% discount to 30 June 2021 book value (based on draft independent valuations in respect of the year ended 30 June 2021), providing opportunity for valuation uplift of $17.3 million or ~3 cpu.
(b) The Acquisitions are accretive to FY22 FFO/Unit and results in FFO guidance for the 2022 financial year of at least 8.3 cpu, representing an increase of 24% as compared to FFO of 6.7cpu for the 2021 financial year as provided in HDN's PDS dated 16 October 2020.
(c) The acquisition of the LFR Portfolio increases HDN's model portfolio sub-sector weighting to LFR to 35% (currently slightly below target).
(d) The transaction will reduce HDN's 31 December 2020 pro-forma gearing from 34.5% to 32.1% and at the lower end of its targeted 30-40% gearing range. This will provide significant debt capacity for HDN to make further accretive acquisitions in the future.
(e) The opinion of the Independent Expert set out in Schedule 2 of the Notice, is that the Acquisitions are fair and reasonable for Unitholders not associated with HMC.

The potential disadvantages for HDN as a consequence of the Acquisitions include:

(a) Transaction costs of approximately $28 million, predominantly comprising stamp duty, are expected to be incurred in relation to the Acquisitions. However, these costs would be payable irrespective of whether the LFR Portfolio was purchased from a related party, and includes those associated with the acquisition of Armstrong Creek Town Centre.
(b) There are several risks associated with the Acquisitions which, if they were to occur, may have an adverse effect on Unitholder returns. While not an exhaustive list, Section 2.6 outlines some of the key risks.

The Independent Expert's Report also summarises, in section 3.2.6, some implications if the Acquisitions do not go ahead.

2.6 Potential risks associated with the Acquisitions

While not an exhaustive list, the following potential risk factors may arise from the Acquisitions:

(a) ( Acquisitions may not complete ) Completion of the Acquisitions is subject to the Unitholder approval under Listing Rule 10.1. If Unitholders do not approve the Acquisitions, the Acquisitions will not proceed. If the Acquisitions do not proceed, HFML will continue to identify other value accretive opportunities consistent with HDN's strategy of identifying acquisition opportunities within the daily needs sector and its model portfolio to expand and grow its market share. In the short term, the proceeds of the Entitlement Offer which would have been used to fund the purchase of the LFR Portfolio, will instead be used to repay HDN's existing debt facilities and for general working capital purposes.

If completion of the Acquisitions are delayed, HFML may incur additional costs and it may take longer than anticipated for HDN to realise the benefits of the Acquisitions. Any failure to complete, or delay in completing, an Acquisition may have a material adverse effect on HDN's financial position and performance.

(b) ( Analysis of the Acquisitions ) HFML had undertaken financial, business and other analyses of the LFR Portfolio in order to determine their attractiveness to HDN and whether to pursue the Acquisitions. It is possible that such analysis, and the best estimate assumptions made by HFML, draw conclusions and forecasts that are inaccurate or which will not be realised in due course. There is also a risk that acquired properties do not perform as expected due to a variety of factors including, but not limited to, tenants vacating the properties or tenant default. To the extent that the actual results achieved by the properties are different than those indicated by HFML's analysis, there is a risk that the profitability and future earnings of the operations of those properties and HDN in general may be materially different from the profitability and earnings reflected in the guidance provided by HFML.
(c) ( Valuation ) The value of the LFR Portfolio, and the broader HDN portfolio generally, may be impacted by a number of factors affecting the Australian property market generally. The purchase price of the properties within the LFR Portfolio was agreed by reference to independent third party valuations as at 31 December 2020, and any expected valuation uplift is based on 30 June 2021 independent valuations, which were provided in draft form and subject to change. These valuations represent only the analysis and opinion of the valuation experts at a certain date and are not guarantees of present or future property values. Property values may fall if the underlying assumptions on which the valuation reports are based change in the future. Valuations may differ depending on the valuer appointed. A valuation may not reflect the actual price that would be realised if a property is sold. As property valuation adjustments are reflected in HDN's statement of profit and loss, any decreases in value would have a corresponding effect on the statement of profit and loss and HDN's financial position and performance.
(d) ( COVID-19 ) The outbreak of COVID-19 continues to impact global economic markets. Any governmental or industrial measures taken in response to COVID-19 may adversely impact HDN's operations and are likely to be beyond the control of HFML.

The Directors continue to monitor the situation closely and have considered the impact of COVID-19 on HDN's business and financial performance. However, the situation is continually evolving, and the consequences are therefore inevitably

uncertain. In compliance with its continuous disclosure obligations, HDN will continue to update the market in regard to the impact of COVID-19 on its revenue channels and other adverse impacts on HDN. If any of these impacts appear material prior to the Meeting, HDN will notify investors accordingly.

2.7 Indicative Timetable

Subject to the requirements of the Listing Rules, HFML anticipates completion of the Entitlement Offer and the Acquisitions will be in accordance with the following timetable:

Event	Date*
Announcement of the Entitlement Offer	Monday, 19 April 2021
Institutional Entitlement Offer Closing Date	Monday, 19 April 2021
Retail Entitlement Offer Opening Date	Monday, 26 April 2021
Allotment and Issue of New Units under the Institutional Entitlement Offer	Tuesday, 4 May 2021
Retail Entitlement Offer Closing Date	Friday, 7 May 2021
Allotment and Issue of New Units under the Retail Entitlement Offer	Friday, 14 May 2021
Despatch of holding statements for New Units issued under the Retail Entitlement Offer	Monday, 17 May 2021
Notice of Meeting dispatched to Unitholders	Tuesday, 18 May 2021
Meeting to approve the Acquisitions	Wednesday, 16 June 2021
Expected completion of Acquisitions	Thursday, 1 July 2021
Bonus Unit Determination Date	Monday, 16 August 2021
Expected Bonus Unit issue date and date for completion of the Selective Buy-Back	Friday, 10 September 2021

Note : These dates are indicative only and subject to change.

2.8 Listing Rule 10.1

Resolution 1 seeks the required Unitholder approval for the Acquisitions under and for the

purposes of Listing Rule 10.1.

Listing Rule 10.1 provides that a listed entity must ensure that neither it, nor any of its child entities, acquires a substantial asset from, or disposes of a substantial asset to, certain persons identified in Listing Rule 10.1, including an associate of a related party of the entity, unless it obtains approval of the holders of its ordinary securities.

HMC is a related party for the purposes of Listing Rule 10.1, because (i) the responsible entity of HDN, HFML, is controlled by HCDL (an entity within the HMC stapled group) and (ii) it is a substantial (10%+) Unitholder (through its 26.6% interest held by HCL).

Under Listing Rule 10.2, an asset is substantial if the value of the asset, or the value of the consideration paid for it is, or in ASX's opinion is, 5% or more of the entity's equity interests as set out in the latest accounts lodged with ASX.

Based on the most recent accounts lodged with ASX on 17 February 2021, HDN has total equity interests of approximately $644.8 million. Accordingly, an asset will be considered substantial if the value of the asset is at least approximately $33.2 million.

The total consideration payable by HFML to HMC for the LFR Portfolio is $266.4 million cash, which exceeds 5% of HDN's total equity interests as disclosed on 17 February 2021. Accordingly, the Acquisitions, taken as a whole, are considered an acquisition of a substantial asset for the purposes Listing Rule 10.1 and therefore require the approval of Unitholders under Listing Rule 10.1.

The effect of passing Resolution 1 will be to allow HDN (and its related entities/nominees) to acquire the LFR Portfolio.

If Resolution 1 is not passed, HFML will continue to identify other value accretive opportunities consistent with HDN's strategy of identifying acquisition opportunities within the daily needs sector and its model portfolio to expand and grow its market share. In the short term, the proceeds of the Entitlement Offer which would have been used to fund the purchase of the LFR Portfolio, will instead be used to repay HDN's existing debt facilities and for general working capital purposes.

Resolution 1 is an ordinary resolution and may be passed by a majority of eligible Unitholders voting on the Resolution.

2.9 Chapter 2E of the Corporations Act

In accordance with section 208 of the Corporations Act (as varied by section 601LB of the Corporations Act), to give a financial benefit to a related party, HDN must obtain Unitholder approval unless the giving of the financial benefit falls within an exception in sections 210 to 216 of the Corporations Act.

HMC is a related party for the reasons set out in Section 2.8 and will receive a financial benefit by receiving $266.4 million in cash from selling the LFR Portfolio to HFML.

The Directors consider that Unitholder approval pursuant to Chapter 2E of the Corporations Act is not required in respect of the Acquisitions because the Acquisitions were negotiated on an arm's length basis and therefore fall within the exception contained in section 210 of the Corporations Act. In this regard:

(a) the Acquisitions were reviewed and recommended by HFML's independent directors;
(b) the Acquisitions were reviewed and considered by HDN's Audit & Risk Committee under its established process for related party transactions in accordance with its Conflict of Interest and Related Party Transactions Policy and Protocol; and
(c) an independent valuation as at 30 June 2021 has been obtained in respect of each property within the LFR Portfolio and the purchase price payable to HMC in respect of each individual property within the LFR Portfolio is equal to, or less than, the independent valuation (currently in draft form pending finalisation at year end).

2.10 Independent Expert's Report

Listing Rule 10.5.10 requires that a notice of meeting approving a transaction under Listing Rule 10.1 must include a report on the transaction from an independent expert.

The Independent Expert's Report set out in Schedule 2 of this Notice sets out a detailed independent examination of the Acquisitions, to enable non-associated Unitholders to assess the merits of, and whether to approve, Resolution 1. The Independent Expert's Report has concluded that the Acquisitions the subject of Resolution 1 are fair and reasonable to Unitholders not associated with HMC.

Unitholders are urged to carefully read the Independent Expert's Report to understand its scope, the methodology of the valuation and the sources of information and assumptions made.

If requested by a Unitholder, HFML will send to the Unitholder a hard copy of the Independent Expert's Report at no cost.

2.11 Specific information required by Listing Rule 10.5

Listing Rule 10.5 requires that the following information be provided to Unitholders:

(a) the LFR Portfolio will be acquired from Home Consortium (or its related entities);
(b) Home Consortium and its related entities fall within Listing Rules 10.1.1 and 10.1.3 as (i) HCDL (an entity within the HMC stapled group) owns all of the shares in HFML, the responsible entity of HDN and (ii) HCL is a substantial (10%+) Unitholder (through its 26.6% interest in HDN);
(c) details of the LFR Portfolio being acquired are set out in Section 2.2;
(d) the consideration for the acquisition of the freehold interest in the LFR Portfolio will be the payment of $266.4 million in cash;
(e) the funding requirements for the acquisition of the LFR Portfolio will be satisfied from a combination of existing cash reserves, the proceeds of the Entitlement Offer and undrawn debt facilities;
(f) the timetable for completion of the Acquisitions is summarised in Section 2.7;
(g) a summary of the material terms of the Acquisitions is set out in Section 2.2;
(h) a voting exclusion statement is included in the Notice; and
(i) a copy of the Independent Expert's Report is included in Schedule 2.

2.12 Directors' interests

David Di Pilla and Greg Hayes, both directors of HFML, are also directors of HMC. David Di Pilla and Greg Hayes have disclosed their interest to the Board in accordance with the HDN Board Charter.

Both David Di Pilla and Greg Hayes have each advised that they have, and will continue to abstain, from further participation in decisions of the Board in relation to the Acquisitions.

The Board (consisting of all directors other than David Di Pilla and Greg Hayes) has considered the disclosure as required by the Board Charter, having regard to the nature of the interests disclosed and all relevant circumstances, and resolved that both David Di Pilla and Greg Hayes:

(a) abstain from participating in decisions of the Board relating to the Acquisitions; and

(b) abstain from making or participating in any recommendation to Unitholders in relation to the Acquisitions.

On this basis, the Board (consisting of all directors other than David Di Pilla and Greg Hayes) confirms that both David Di Pilla and Greg Hayes abstained from participating in decisions of the Board relating to the Acquisitions and have abstained from making or participating in any recommendation to Unitholders in relation to the Acquisitions.

HFML will not, however, disregard any votes cast by David Di Pilla, Greg Hayes or their associates in favour of Resolution 1.

Otherwise, the Directors have no interest in the Acquisitions other than in their capacity as Unitholders.

2.13 Directors' recommendation

Based on the Directors' detailed consideration and assessment of the Acquisitions and taking into account the advantages and disadvantages described in this Explanatory Memorandum and considering the opinion of the Independent Expert, the Directors (other than David Di Pilla and Greg Hayes) unanimously recommend that Unitholders vote in favour of Resolution 1.

3. Resolution 2 – Approval of the Selective Buy-Back

3.1 Overview

On 19 April 2021, HFML announced the launch of the Entitlement Offer, the proceeds of which are intended to be used for the purchase of the LFR Portfolio from HMC and Armstrong Creek Town Centre from an unrelated third party. Refer to Section 2, and the ASX announcement and Investor Presentation lodged by HDN with ASX on 19 April 2021 for further details in relation to the property acquisitions.

The Entitlement Offer consisted of an underwritten accelerated 1 for 2.36 non-renounceable entitlement offer of New Units at an offer price of $1.295 per New Unit, raising gross proceeds of approximately $265 million. The institutional component of the Entitlement Offer completed on 20 April 2021 and raised approximately $90 million. The retail component of the Entitlement Offer closed on 7 May 2021 and raised approximately $175 million, which includes HMC's commitment to take up its full entitlement of $70.6 million (from its 26.6% investment in HDN), which settled as part of the retail component of the Entitlement Offer.

The Entitlement Offer includes the issue to each eligible Unitholder or investor who was issued New Units with up to 1 Bonus Unit for every 20 New Units issued, provided the eligible Unitholder or investor holds a number of Units in excess of their Record Date Holding on the Bonus Unit Determination Date, being 16 August 2021. Subject to satisfying the minimum holding requirements, eligible Unitholders will be issued the Bonus Units for nil consideration. Refer to the ASX announcement and Investor Presentation lodged by HDN with ASX on 19 April 2021 and the Retail Entitlement Offer Booklet lodged by HDN with ASX on 26 April 2021 for further details in relation to the proposed issue of Bonus Units.

The issue of the Bonus Units is being supported (funded) by HCL, which has agreed to sell back to HFML a number of Units equal to the number of Bonus Units that are issued, pursuant to an off-market selective buy-back for nominal consideration ( Selective BuyBack ). The result of the issue of Bonus Units and the Selective Buy-Back is that Unitholders will benefit from the allotment and issue of additional Bonus Units, with a net zero change on the issued capital of HDN and result in an a implied discount in the offer price under the Entitlement Offer of ~4.8% (assuming the Bonus Units are issued).

This issue of Bonus Units has been structured in this way to raise additional capital without requiring the New Units under the Entitlement Offer to be issued at a discount to their market value, while Unitholders will be able to realise a discount provided they meet the conditions to be issued Bonus Units, on the Bonus Unit Determination Date. The structure also has the benefit of increasing the liquidity of Units by reducing the number of Units currently held by HMC (excluding New Units issued under the Entitlement Offer), which are the subject of a voluntary escrow until 26 November 2021.

Assuming the maximum number of Bonus Units are issued and HMC does not acquire any additional units in HDN following completion of the Entitlement Offer, HCL's interest in HDN will be reduced from 26.6% to approximately 25.5% (following completion of the Entitlement Offer). Those remaining Units that HCL held at the time of HDN's listing on ASX in November 2020 (which, for the avoidance of doubt, excludes New Units issued under the Entitlement Offer) will remain subject to the voluntary escrow noted above and in section 3.2.

3.2 Summary of the Selective Buy-Back Agreement

HFML, HCL and HCDL have entered into the Selective Buy-Back Agreement, pursuant to which HFML has agreed to buy-back, and HCL has agreed to sell, up to 10,231,213 Units held by HCL ( Buy-Back Units ) for nominal consideration and subject to certain conditions.

Completion of the Selective Buy-Back is conditional on:

(a) completion of the Entitlement Offer;
(b) HFML obtaining all necessary waivers, exemptions and modifications required to be obtained by HFML from ASIC to enable HFML to undertake the Selective Buy-Back in compliance with the Corporations Act and such waivers, exemptions and modifications not having been withdrawn or modified; and
(c) Unitholders approving, by way of a special resolution, the terms of the Selective Buy-Back Agreement and the Selective Buy-Back, which is the subject of Resolution 2; and
(d) any consent, amendment or waiver necessary or desirable to the transactions and arrangements contemplated in the Selective Buy-Back Agreement under any syndicated facility agreement to which (i) Home Consortium or (ii) HFML, is party (if any) has been obtained and is effective.

At the date of the Notice, none of these conditions have become incapable of being satisfied. HFML has completed the Entitlement Offer and received the necessary waivers, exemptions and modifications from ASIC under the ASIC Relief Instrument (referred to below).

It is proposed that the Selective Buy-Back will be implemented as follows:

(a) HFML has agreed to buy, and HCL has agreed to sell, a number of Buy-Back Units from HCL equal to the number of Bonus Units issued, being no more than 10,231,213 Units;
(b) the Selective Buy-Back will be conducted in accordance with the requirements of the ASIC Relief Instrument (referred to below);
(c) nominal consideration ($100) will be paid for the Buy-Back Units; and
(d) upon registration of the transfer of the Units bought back by HFML, those Units will be cancelled.

Under the terms of the Selective Buy-back Agreement, HFML and HCL have given mutual warranties as to status, authority and the binding nature of the agreement.

Following completion of the Entitlement Offer, 687,533,717 Units are on issue. The Selective Buy-Back relates to a total of up to 10,231,213 Units, which represents approximately 1.5% of the Units on issue following completion of the Entitlement Offer.

As noted above, the Units held by HCL (excluding New Units issued under the Entitlement Offer) are currently subject to voluntary escrow arrangements until 26 November 2021, which prevent any dealing in those Units, including transferring them for the purposes of a selective buy-back. In order to give effect to the Selective Buy-Back, HFML must partially release HCL from its voluntary escrow arrangements. Having regard to the potential advantages of the Selective Buy-Back (as set out in Section 3.4) and all of the relevant circumstances, the Directors have resolved to partially release HCL from the voluntary

escrow arrangements (only in so far as it relates to the Selective Buy-Back and the BuyBack Units) on the basis that to do so is in the best interests of all Unitholders (other than HCL).

A copy of the Selective Buy-Back Agreement is available for inspection by Unitholders upon request at the registered office of HDN before the Meeting.

3.3 Funding and financial effect of the Selective Buy-Back

The Buy-Back Units will be acquired for nominal consideration (i.e. $100), which will be satisfied through existing cash holdings of HDN scheme assets (as opposed to HFML's own assets or assets other than HDN assets).

In light of only nominal consideration being payable, the Selective Buy-Back will have no impact on the balance sheet of HDN or the total number of Units on issue, as the number of Units bought back will correspond to the number of Bonus Units to be issued. Accordingly, there will be a net zero effect on the assets of HDN, and the Selective Buy-Back will not cause any realisation of assets that would be disadvantageous or detrimental to Unitholders.

Further, the Selective Buy-Back will not materially prejudice HFML's ability to pay its creditors in relation to liabilities incurred by it as the responsible entity of HDN, as the Buy-Back Units will be bought back for nominal consideration and therefore will have little to no impact on the assets of HDN.

The Selective Buy-Back should have no income tax implications for HDN or Unitholders, other than HCL.

3.4 Advantages and disadvantages of the Selective Buy-Back

The Board has identified the following advantages of the Selective Buy-Back for Unitholders:

(a) the Selective Buy-Back will not require payment by HDN, other than for nominal consideration;
(b) the issue of the Bonus Units and the Selective Buy-Back allows HDN to include an intrinsic discount to the offer price under the Entitlement Offer (provided eligible Unitholders meet minimum holding requirements) without requiring further Units to be issued;
(c) the issue of Bonus Units is effectively being funded by HCL through the Selective Buy-Back. This ensures that there is minimal dilution to NTA per Unit to existing Unitholders as a result of the issue of Bonus Units;
(d) there will be a net zero change in the issued capital of HDN as a result of the issue of Bonus Units, and will effectively result in a transfer of Units from HCL to eligible Unitholders; and
(e) the Selective Buy-Back will increase the liquidity of Units by reducing the concentration of Units held by HCL.

The Board does not believe that the Selective Buy-Back poses any significant disadvantages to Unitholders. However, in making their decision, Unitholders should consider the impact of the Selective Buy-Back as follows:

(a) there is no risk of the asset backing of non-participating Unitholders being diluted; and

(b) there will be no change in control as a result of the Selective Buy-Back, noting that HCL's interest in HDN will be reduced following completion of Selective Buy-Back (assuming HMC does not acquire any additional units in HDN).

3.5 ASIC Relief Instrument

Section 257A of the Corporations Act authorises an Australian company to buy-back its own shares if the buy-back does not materially prejudice the company’s ability to pay its creditors and it follows the procedures set out in Division 2 of Part 2J.1 of the Corporations Act. However, the Corporations Act does not contain equivalent provisions for buy-backs of interests in a managed investment scheme, such as the Selective Buy-Back and therefore specific ASIC relief was required.

Accordingly, in order to implement the Selective Buy-Back, ASIC has granted HFML relief under the ASIC Relief Instrument from certain provisions of the Corporations Act to enable a selective buy-back of Units on the same basis as if they were shares of a company. The ASIC Relief Instrument includes:

(a) an exemption from section 601FC(1)(d) of the Corporations Act to the extent that it requires HFML to treat members who hold interests of the same class equally;
(b) an exemption from section 601GA(4) of the Corporations Act to enable HFML to conduct the Selective Buy-Back without complying with the withdrawal procedures set out in the constitution of HDN;
(c) an exemption from Part 5C.6 of the Corporations Act to enable HFML to conduct the Selective Buy-back without complying with the withdrawal procedures for non-liquid schemes in that part;
(d) an exemption from section 601FG(1)(a) of the Corporations Act to enable HFML to acquire interests in HDN for less consideration than another person, as HFML intends to buy back the Buy-Back Units from HCL for nominal consideration;
(e) an exemption from Division 5A of Part 7.9 of the Corporations Act, which prohibits unsolicited offers to purchase financial products off-market;
(f) an exemption from the requirement in section 601KB(2) of the Corporations Act for HFML to give the withdrawal offer to all members of HDN or to all members of a particular class, as the Selective Buy-Back is structured as a selective buy-back available only to HCL; and
(g) an exemption from the requirement in section 601KB(3)(a) of the Corporations Act to enable HFML to facilitate a shorter offer period than 21 days.

It is a requirement under the ASIC Relief Instrument that the Selective Buy-Back be approved by a special resolution (being 75% of votes cast on the Resolution) passed at a meeting of Unitholders, with no votes being cast in favour of the resolution by HCL or its associates.

The effect of passing Resolution 2 will be to allow HFML to complete the Selective BuyBack, by transferring and subsequently cancelling up to 10,231,213 Units held by HCL for nominal consideration.

If Resolution 2 is not passed, the issue of Bonus Units will not proceed and Unitholders will not enjoy the benefits noted above.

3.6 Directors' interests

The Selective Buy-Back relates only to the Units held by HCL and therefore none of the Directors may participate in the Selective Buy-Back.

Both David Di Pilla and Greg Hayes are current directors of HFML and HCL.

(a) abstain from participating in decisions of the Board relating to the Selective BuyBack; and
(b) abstain from making or participating in any recommendation to Unitholders in relation to the Selective Buy-Back.

On this basis, the Board (consisting of all directors other than David Di Pilla and Greg Hayes) confirms that both David Di Pilla and Greg Hayes abstained from participating in decisions of the Board relating to the Selective Buy-Back and have abstained from making or participating in any recommendation to Unitholders in relation to the Selective Buy-Back.

Notwithstanding this, HFML will not disregard any votes cast by David Di Pilla, Greg Hayes or their associates in favour of Resolution 2.

Otherwise, the Directors have no interest in the Selective Buy-back except as Unitholders.

3.7 Directors' recommendation

Based on the Directors' detailed consideration and assessment of the Selective Buy-back and taking into account the advantages and disadvantages described in this Explanatory Memorandum, the Directors (other than David Di Pilla and Greg Hayes) unanimously recommend that Unitholders vote in favour of Resolution 2.

Schedule 1 – Definitions

In the Notice and this Explanatory Memorandum, unless the context otherwise requires:

$ or A$	means Australian dollars.
Acquisitions	has the meaning given to that term in Section 2.1.
ASIC	means the Australian Securities & Investments Commission.
ASIC Relief Instrument	means ASIC Instrument 21-0410 granted by ASIC on 11 May 2021.
ASX	means ASX Limited ABN 98 008 624 691 and where the context
	permits, the market operated by it.
Board	means the board of Directors of HFML.
Bonus Unit	means a Unit to be allotted and issued for nil consideration to eligible
	Unitholders or any investors who are issued New Units, for every 20
	New Units issued under the Entitlement Offer.
Bonus Unit	has the meaning given to that term in Section 2.3.
Determination Date
Buy-Back Units	has the meaning given in Section 3.2.
Chair	means the person appointed to chair the Meeting convened by the
	Notice.
Corporations Act	Corporations Act 2001(Cth).
cpu	means cents per Unit.
Director	means a director of HFML.
Entitlement Offer	means the underwritten accelerated, non-renounceable pro rata
	entitlement offer of New Units announced by HDN on 19 April 2021.
Explanatory	means this explanatory memorandum which forms part of the Notice.
Memorandum
FFO	means funds from operations.
General Meetingor	means the meeting of Unitholders to be held on Wednesday, 16 June
Meeting	2021.
HCDL	Home Consortium Developments Limited (ACN 635 859 700).
HCL	Home Consortium Limited (ACN 130 990 593).
HDN	HomeCo Daily Needs REIT (ARSN 645 086 620).
HFML	HMC Funds Management Limited (ACN 105 078 635, AFSL 237257)
	in its capacity as responsible entity of HDN.
Home Consortiumor	means the stapled entity comprised of HCL and HCDL.
HMC
Independent Expert	means KPMG Financial Advisory Services (Australia) Pty Ltd.

Independent Expert's	means the report prepared by the Independent Expert which is
Report	annexed to this Notice as Schedule 2.
LFR	means large format retail.
LFR Portfolio	has the meaning given to that term in Section 2.1.
Listing Rules	means the listing rules of ASX.
New Unit	means Units offered and issued under the Entitlement Offer.
Notice	means the notice of meeting for the General Meeting which
	accompanies this Explanatory Memorandum.
NTA	means net tangible assets.
PDS	means product disclosure statement.
Proxy Form	means the proxy form attached to the Notice.
Record Date Holding	means the number of Units held by a Unitholder as at 7.00pm (Sydney
	time) on 21 April 2021.
Registry	Link Market Services Limited (ACN 083 214 537).
Resolution	means a resolution proposed pursuant to the Notice.
Schedule	means a schedule to this Explanatory Memorandum.
Section	means a section of this Explanatory Memorandum.
Selective Buy-Back	has the meaning given to that term in Section 3.1.
Selective Buy-Back	means the agreement dated 19 April 2021 between HFML and Home
Agreement	Consortium in relation to the Selective Buy-Back, as summarised in
	Section 3.2.
Unit	means a fully paid ordinary unit in the capital of HDN.
Unitholder	means a registered holder of Units.

Schedule 2 – Independent Expert's Report

kpmg

KPMG Corporate Finance

A division of KPMG Financial Advisory Services (Australia) Pty Ltd Australian Financial Services Licence No. 246901 Level 19, Riparian Plaza 71 Eagle Street Brisbane Qld 4000

ABN: 43 007 363 215 Telephone: +61 7 3233 3111 Facsimile: +61 7 3233 3100 www.kpmg.com.au

GPO Box 223 Brisbane Qld 4001 Australia

The Independent Directors HMC Funds Management Limited as responsible entity of HomeCo Daily Needs REIT 19 Bay Street Double Bay NSW 2028

12 May 2021

Dear Directors

Independent Expert Report and Financial Services Guide

PART ONE – INDEPENDENT EXPERT’S REPORT

Introduction

The Proposed Transaction

On 19 April 2021, HMC Funds Management Limited, as responsible entity of HomeCo Daily Needs REIT ( HDN ), announced the proposed acquisition of properties located at Box Hill, Victoria, Bundall, Queensland, Mackay, Queensland, Marsden Park, New South Wales, South Morang, Victoria, Toowoomba South, Queensland and Upper Coomera, Queensland (together, the LFR Portfolio ) from Home Consortium Limited and Home Consortium Developments Limited (together, HMC ) for cash consideration of $266.4 million, excluding stamp duty and transaction costs ( Proposed Transaction ).

In addition to the Proposed Transaction, HDN announced:

the acquisition of the Armstrong Creek Town Centre ( Armstrong Creek ) for cash consideration of $55.6 million, excluding stamp duty and transaction costs ( Armstrong Acquisition )
a $265.0 million 1 for 2.36 underwritten accelerated non-renounceable rights issue at an issue price of $1.295 per unit ( Entitlement Offer ). Unitholders who take up their full or partial entitlement in the Entitlement Offer and other investors issued units under the Entitlement Offer will receive up to 1 bonus unit for every 20 units subscribed for in the Entitlement Offer ( Bonus Units ) conditional on certain criteria. Home Consortium Limited ( HCL ) has agreed to sell to HDN, via a selective buyback, up to 10,231,213 units HCL holds, for nominal consideration ( Selective Buy-Back ). The number of units bought back will be the same as the number of Bonus Units that are to be issued under the Entitlement Offer, and
the Armstrong Acquisition and the Proposed Transaction, together with the associated transaction costs, are to be funded via a combination of existing cash reserves, the proceeds from the Entitlement Offer and the drawing down of an additional $85 million from HDN’s existing debt facilities.

©2021 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation.

HMC Funds Management Limited as responsible entity of HomeCo Daily Needs REIT Independent Expert Report and Financial Services Guide 12 May 2021

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Further details in relation to the Proposed Transaction are set out in Section 4 of this report and the Notice of Extraordinary General Meeting and the accompanying Explanatory Memorandum ( NOM ) to which this report is attached.

As part of their due diligence in relation to the LFR Portfolio, HDN have commissioned external valuers ( Savills ) to value each of the properties making up the LFR Portfolio as at 30 June 2021. As at the date of this report, Savills had provided HDN with draft findings in relation to the June 21 Valuations ( Draft June 21 Valuations ), which showed a value for the LFR Portfolio of $283.7 million. Based on the Draft June 21 Valuations, HDN is expecting to book an immediate valuation uplift of $17.3 million in relation to the LFR Portfolio.

HMC controls HMC Funds Management Limited, the responsible entity of HDN ( Responsible Entity ) and also holds, through HCL, 26.6% of the units of HDN and is accordingly considered to be a person to which Australian Securities Exchange ( ASX ) Listing Rule 10.1 applies. As such, the Proposed Transaction requires the approval of the unitholders of HDN who are not associated with HMC ( Nonassociated Unitholders ). The Selective Buy-Back is subject to unitholder approval by a special majority resolution. The issue of the Bonus Units is subject to the Selective Buy-Back resolution being approved. Neither the Armstrong Acquisition nor the Entitlement Offer requires unitholder approval.

The specific terms of the resolution to be approved by Non-associated Unitholders in relation to the Proposed Transaction are summarised in Section 4.2 of this report and set out in the NOM to which this report is attached.

The Independent Directors of HMC Funds Management Limited as responsible entity for HDN (the Independent Directors ) have requested KPMG Financial Advisory Services (Australia) Pty Ltd (of which KPMG Corporate Finance is a division) ( KPMG Corporate Finance ) prepare an independent expert’s report for Non-associated Unitholders in relation to the Proposed Transaction in accordance with ASX Listing Rule 10.1 and the guidance provided by the Australian Securities and Investments Commission ( ASIC ). The purpose of the independent expert’s report is to set out whether, in our opinion, the Proposed Transaction is fair and reasonable to Non-associated Unitholders.

HDN

HDN is an externally managed Australian real estate investment trust ( REIT ), which listed on the ASX in November 2020. HDN has a mandate to invest in predominately metro-located, convenience based assets across target sub-sectors of neighbourhood retail, large format retail and health & services. Immediately prior to the announcement of the Proposed Transaction HDN had a market capitalisation of approximately $625.4 million.[1] Further detail on HDN is set out in Section 9 of this report.

HMC

HMC is an internally managed property group, focused on the ownership, development and management of real assets. HMC manages a property portfolio of assets with tenants spanning daily needs, leisure and lifestyle, healthcare, wellness and government services enterprises across Australia. HMC was established in 2017 when a consortium of investors (comprising Spotlight Group Holdings, Chemist Warehouse

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Group, Primewest Group Limited and Aurrum Holdings) acquired the former Masters Home Improvement real estate portfolio from Woolworths Group. It comprises shares in HCL and Home Consortium Developments Limited ( HCDL ) and their controlled entities. HMC was listed on the ASX in October 2019 and immediately prior to the announcement of the Proposed Transaction had a market capitalisation of approximately $1,393 million.[2]

Further information regarding KPMG Corporate Finance, as it pertains to the preparation of this report, is set out in Appendix 1.

Requirements for report

ASX Listing Rule 10.1 states that an entity cannot acquire a substantial asset from a person in a position of influence, including a related party or a substantial securityholder (i.e. a party holding greater than 10% of the entity’s issued securities) without the approval of the holders of its ordinary securities. An asset is substantial if its value (or the consideration being paid to acquire the asset) is equal to or greater than 5% of the equity interests of the entity, as set out in the latest financial statements provided to the ASX (ASX Listing Rule 10.2). The notice of meeting to approve such a transaction must include an independent expert’s report which states whether the transaction is fair and reasonable to the non-associated unitholders (ASX Listing Rule 10.5.10).

In undertaking our work, we have referred to guidance provided by ASIC in its Regulatory Guides, in particular Regulatory Guide 111 ‘Content of expert reports’ ( RG 111 ) which outlines the principles and matters which it expects a person preparing an independent expert report to consider. Further details of the relevant technical requirements and the basis of assessment in forming our opinion are set out in Section 5 of this report.

This report should be considered in conjunction with and not independently of the information set out in the NOM.

HDN has advised that there is no requirement for an independent expert to assess the fairness or the reasonableness of any of the Entitlement Offer, the Selective Buy-Back, the issue of the Bonus Units or the Armstrong Acquisition. Accordingly, KPMG Corporate Finance has not been requested to, and has not provided any opinion on these matters.

KPMG Corporate Finance’s Financial Services Guide is contained in Part Two of this report.

Opinion

In our opinion:

the Proposed Transaction is fair and reasonable to Non-associated Unitholders.

In assessing the fairness of the Proposed Transaction , we have compared our assessed value of the LFR Portfolio to the price HDN has agreed to pay to acquire the LFR Portfolio, being $266.4 million

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3.1

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( Purchase Price ), and have concluded that as the Purchase Price is less than the value we have ascribed to the LFR Portfolio, the Proposed Transaction is fair to Non-associated Unitholders.

As we have concluded that the Proposed Transaction is fair we have, in accordance with the Australian Securities & Investments Commission’s ( ASIC ) Regulatory Guide 111 Content of expert reports ( RG 111 ), concluded that the Proposed Transaction is reasonable to Non-associated Unitholders. Notwithstanding the RG 111 requirement, we have also considered the compatibility of the LFR Portfolio with HDN’s strategic objectives and current portfolio, the impact of the Proposed Transaction on the financial performance and position of HDN and the implications for HDN if the Proposed Transaction is not approved.

Fairness

KPMG Corporate Finance has assessed the fairness of the Proposed Transaction by comparing our assessed value of the LFR Portfolio to the Purchase Price. A comparison of the KPMG Corporate Finance’s value of the LFR Portfolio and the Purchase Price is illustrated in the following figure.

Figure 1: Fairness assessment

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Purchase Price ($ million) $266.4
Value of LFR Portfolio ($ million) $275.6 $287.1
$260.0 $265.0 $270.0 $275.0 $280.0 $285.0 $290.0
Source: KPMG Corporate Finance analysis.
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Pursuant to RG 111 at RG 111.58, the Proposed Transaction is ‘fair’ if the value of the financial benefit being offered by HDN to HMC (i.e. the Purchase Price) is equal to or less than the value of the assets being acquired (i.e. the LFR Portfolio).

As the Purchase Price is below our assessed value range for the LFR Portfolio, the Proposed Transaction is fair to Non-associated Unitholders .

3.1.1 Value of the LFR Portfolio

KPMG Corporate Finance has valued each of the properties making up the LFR Portfolio, as summarised in the following table. This shows an adopted value range for the LFR Portfolio of $275.6 million to $287.1 million.

The assessment of value is based primarily on an Income Approach having regard to capitalisation rates derived from transactions involving the sale of comparable assets, the net operating income ( NOI) of the subject assets and asset specific adjustments for current vacancies, imminent expiries, outstanding incentives, reversions where passing rental differs to our adopted market rental, budgeted capital

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expenditure and balance land. We have cross-checked our findings from the primary approach using a Market Approach.

The key inputs into the LFR Portfolio valuation calculations, together with our findings, are shown in the following table.

Table 1: LFR Portfolio key inputs and findings

Property	GLA1	WALE3	Adopted Capitalisation Rate Range	Adopted Capitalisation Rate Range	Market	Value Range	Resultant Value	Capital Rate
	(sqm2)	(years)	(%)	(%)	($ m)	($ m)	($ psm4)	($ psm)
Box Hill	13,873	8.6	6.25%	6.00%	55.7	58.1	4,015	4,188
Bundall	10,458	5.3	6.75%	6.50%	34.4	35.8	3,289	3,423
Mackay	11,929	4.9	7.50%	7.25%	26.8	27.6	2,247	2,314
Marsden Park	11,507	4.9	5.50%	5.25%	53.8	56.4	4,676	4,902
South Morang	11,192	5.6	6.50%	6.25%	35.6	37.1	3,181	3,315
Toowoomba	11,360	5.8	7.00%	6.75%	31.5	32.7	2,773	2,879
Upper Coomera	11,261	7.0	6.25%	6.00%	37.8	39.4	3,357	3,499
Total	81,580				275.6	287.1

Source: KPMG Corporate Finance analysis. Notes:

1. Reported gross lettable area ( GLA ) is estimated as at 23 April 2021 and is subject to ongoing design changes. 2. Square metres ( sqm ).

3. Weighted average lease expiry ( WALE ) by income is calculated based on the occupancy details contained in the relevant appendix.

4. Per square metre ( psm ).

The detailed valuation of each of the properties comprising the LFR Portfolio is set out in Section 8 of this report and the relevant appendix.

3.2 Reasonableness

In accordance with RG 111, a proposed transaction is reasonable if it is fair. As we have assessed the Proposed Transaction to be fair, we have concluded that the Proposed Transaction is reasonable. Notwithstanding the statutory obligation to conclude the Proposed Transaction is reasonable, we have also considered a range of factors as set out below which Non-associated Unitholders may wish to consider in assessing whether to approve the Proposed Transaction.

3.2.1 Compatibility of the LFR Portfolio acquisition with HDN’s strategic plan and impact on portfolio metrics

The acquisition of the LFR Portfolio is consistent with HDN’s objective, as stated in its Product Disclosure Statement ( PDS ), of investing in predominately metro-located, convenience based assets, across the target sub-sectors of neighbourhood retail, large format retail and health & services assets, as well as with its strategy of making value-accretive acquisitions that are in line with the portfolio strategy.

This is illustrated by the following points:

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with 72% of the LFR Portfolio comprising large format retail tenancies (by gross income[3] ), the Proposed Transaction will result in large format retail having a pro forma[4] weighting of 35% (by gross income) across the HDN portfolio (compared to a target of 30%), which is a 10% increase from the weighting as at 31 December 2020[5] . Consequently, neighbourhood retail reduces to 45% (compared to a target of 50%), whilst health & services remains at 20% (compared to a target of 20%)
the Proposed Transaction will not significantly change the geographic diversification (by property value) of the HDN portfolio, with New South Wales ( NSW ) and Victoria ( VIC ) remaining the dominant geographies (67% on a pro forma basis including the Proposed Transaction and Armstrong Acquisition), while the Queensland ( QLD ) proportion increases from 17% to 23% and the South Australia ( SA ) and Western Australia ( WA ) proportion decreases slightly
while the LFR Portfolio WALE of 6.5 years[6] is lower than HDN’s portfolio WALE as at 31 December 2020 of 8.1 years[7] , HDN will have no more than 5% of leases (by forecast gross income) expiring in any year prior to FY25 on a pro forma basis as at 30 June 2021
the weighted average capitalisation rate ( WACR ) for the LFR Portfolio of 6.75%[8] , as compared to HDN’s WACR of 5.87% for the operating portfolio as at 31 December 2020, provides the opportunity for HDN to deliver value-accretion through subsequent revaluations
with 100% of the LFR Portfolio leases containing either fixed or consumer price index ( CPI ) rental escalation, the Proposed Transaction provides HDN with future growth potential through structural lease escalations, and
the Proposed Transaction will diversify HDN’s tenant mix, reducing the concentration risk, with the gross income generated by the top 15 tenants reducing from 57.2%[9] as at 31 December 2020 to 51.1%[10] , on a forecast gross income and pro forma basis as at 30 June 2021.

3.2.2 Financial impact of the Proposed Transaction

The Proposed Transaction is expected to:

result in FY22 funds from operations ( FFO ) accretion. Management has advised that the impacts of Proposed Acquisition, the Armstrong Acquisition and the Entitlement Offer, in aggregate is expected to be accretive to FY22 FFO per unit and provided FY22 FFO guidance of at least 8.3 cents per unit ($57.0 million). We have set out in the following table the FY21 FFO guidance, the FY21 FFO guidance annualised and the FY22 FFO guidance excluding the impact of the Proposed Transaction

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and the Armstrong Acquisition. This shows an approximate 1.0% accretion to pre-LFR Portfolio and Armstrong Acquisition FY22 FFO per unit guidance

Table 2: FFO per unit summary

$ million	FY211 FY21 annualised2 FY22 excl. LFR Portfolio & Armstrong Acquisition FY22 incl. LFR Portfolio & Armstrong Acquisition3
FFO Units on issue(million)	20.5 35.1 39.7 57.0 482.9 482.9 482.9 687.5
FFOper unit(cents)	4.2 7.3 8.2 8.3

Source: Management, HDN Acquisitions and Equity Raising Presentation released 19 April 2021 ( Investor Presentation ) and KPMG Corporate Finance analysis.

Notes:

1. FFO includes the FY21 PDS forecast, Marsden Park, QLD and Bunnings Seven Hills, NSW as well as the 1H21 outperformance.

2. FFO is annualised based on the seven months of trading to 30 June 2021.

3. FFO includes the LFR Portfolio, Armstrong Acquisition and interest expense on the debt funding. Units on issue include the 204.6 million units that were issued as part of the Entitlement Offer.

result in a reduction in pro forma net tangible assets ( NTA ) per unit from $1.31[11] to $1.28[12] (2.3%) before any valuation uplift. The reduction in NTA is largely as a result of the anticipated $18.6 million in avoidable stamp duty and transaction costs associated with the Proposed Transaction

result in NTA per unit being broadly maintained at $1.31 when including the proposed revaluations[13] based on the Draft June 21 Valuations

It is noted that if the Selected Buy-Back is approved, eligible unitholders (other than HMC) who receive Bonus Units through the Entitlement Offer will effectively have a 5% increase in the number of units they receive under the Entitlement Offer. For those eligible unitholders, this increase in units will partially offset any reduction in NTA per unit

when combined with the Armstrong Acquisition and the Entitlement Offer, result in a decline in gearing from 34.5% as at 31 December 2020 to a pro forma gearing of 32.5%, before any valuation uplift, or to 32.1% when including the proposed revaluations[14] based on the Draft June 21 Valuations. The reduction in gearing is largely a result of the $265 million of equity that will be raised under the Entitlement Offer, and
the value of investment properties[15] will increase from $1,014.9 million to $1,281.3 million (26%) before any valuation uplift or to $1,298.6 million (28%) when including the proposed revaluations[16]

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based on the Draft June 21 Valuations. In addition, the number of investment properties held will increase from 19 to 26. The increase in the portfolio size, both in value and number of investment properties held, should diversify the risk of the portfolio, given there is less reliance on any single asset.

3.2.3 Other factors

Other factors relevant to Non-associated Unitholders we have considered are as follows:

as set out in the PDS, and summarised at Section 9.1, HDN has contracted to pay HMC an acquisition fee in the amount of 1.0% of the purchase price of any assets directly or indirectly acquired. Accordingly, HDN will pay HMC an acquisition fee of $2.7 million on the successful completion of the Proposed Transaction. We note this same level of fee would have been paid, irrespective of the vendor
as discussed in Section 5.1, the Responsible Entity, HomeCo DNR Property Management Limited ( Property Manager ) and HomeCo DNR Investment Management Pty Ltd ( Investment Manager ) are wholly owned subsidiaries of HMC, and accordingly, any fees paid to these entities are indirectly paid to HMC. As the fees paid to the Responsible Entity, the Investment Manager and the Property Manager are based on either gross asset value ( GAV) or gross income, both of which will increase if the Proposed Transaction is approved, the fees paid by HDN will similarly increase. We note this same level of fee would have been paid, irrespective of who HDN purchased the assets from
under the terms of the Selective Buy-Back and the issue of the Bonus Units, eligible unitholders (other than HMC) will increase the number of HDN units they received under the Entitlement Offer by as much as 5%, for no additional consideration. As set out above, HMC has agreed to sell to HDN, the Selective Buy-Back Units, for nominal consideration, which means that the issue of the Bonus Units has effectively no adverse impact on NTA per unit. This is a benefit to eligible HDN unitholders, and
HDN management ( Management ) has a stated ambition of HDN being included in the S&P/ASX 300 Index ( ASX 300 Index ). Notwithstanding that HDN’s market capitalisation as at 16 April 2021 was larger than a number of companies currently included in the ASX 300 Index, the increased market capitalisation resulting from the Entitlement Offer, as well as the deployment of those funds for the Proposed Transaction and the Armstrong Acquisition, should increase the likelihood of HDN being included in the ASX 300 Index.

3.2.4 Other considerations

RG 111.62 lists a number of factors[17] that an independent expert may consider in assessing the reasonableness of a related party transaction. While most of these issues have either been addressed

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elsewhere in our report or are not relevant in considering the Proposed Transaction, in assessing HDN’s bargaining position we have considered the following factors:

HDN is not in any financial distress
Management has obtained the Draft June 21 Valuations in order to assist in understanding the value of the LFR Portfolio, and
legal advisors were engaged.

3.2.5 Alternatives

HDN had various discussions with HMC in the course of agreeing which properties would form part of the LFR Portfolio. There were other HMC owned properties that were considered and which were ultimately not included in the LFR Portfolio, as they did not align with HDN’s investment/portfolio strategy.

While there are metro located, convenience based assets available in the market, that fall within the neighbourhood retail, large format retail and health & services sub-sectors, there are limited portfolios available that have the size and diversification of the LFR Portfolio. Accordingly, Management have not seriously assessed any alternative portfolios.

3.2.6 Implications if the Proposed Transaction is not approved

Neither the Entitlement Offer nor the Armstrong Acquisition require unitholder approval. Accordingly, Armstrong Creek will be acquired and the additional capital of $265 million will be raised, irrespective of whether the Non-associated Unitholders approve the Proposed Transaction.

Hence, if the Proposed Transaction is not implemented:

HDN will have an additional $256 million[18] of cash which we understand will be used to repay existing debt facilities and for general working capital purposes. If debt was paid down, HDN would have significantly lower gearing of 13.7% (compared with pro forma gearing of 32.1% when including the proposed revaluations[19] based on the Draft June 21 Valuations) and a similar NTA per unit of $1.31 when including the proposed revaluations based on the Draft June 21 Valuations
HDN will likely continue to pursue acquisitions that are consistent with its stated strategy. However, as discussed above, HDN’s expectation is that there will be a limited number of portfolios which have the size and diversification of the LFR Portfolio, hence subsequent acquisitions are likely to be of single assets and/or smaller portfolios, and
the FY22 FFO guidance of $57.0 million will likely not be realised, as the majority of the increase in the FY22 FFO guidance (when including the LFR Portfolio and Armstrong Creek) is assumed to be derived from the LFR Portfolio.

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3.3 Other matters

In forming our opinion, we have considered the interests of the Non-associated Unitholders as a whole. This advice therefore does not consider the financial situation, investment strategy or needs of individual Non-associated Unitholders. It is not practical or possible to assess the implications of the Proposed Transaction on individual Non-associated Unitholders as their individual circumstances are not known.

The decision of Non-associated Unitholders as to whether or not to approve the Proposed Transaction is a matter for individuals based on, amongst other things, their risk profile, liquidity preference, investment strategy and tax position. Individual Non-associated Unitholders should therefore consider the appropriateness of our opinion to their specific circumstances before acting on it. As an individual investor’s decision to vote for or against the proposed resolutions may be influenced by their particular circumstances, we recommend that individual Non-associated Unitholders, including residents of foreign jurisdictions, seek their own independent professional advice.

Our report has been prepared solely for the purpose of assisting Non-associated Unitholders in considering the Proposed Transaction. We do not assume any responsibility or liability to any other party (including retail investors) as a result of reliance on this report for any other purpose. Our opinion should not be construed to represent a recommendation as to whether or not Non-associated Unitholders should elect to vote in favour of the Proposed Transaction.

Neither the whole nor any part of this report or its attachments or any reference thereto may be included in or attached to any document, other than the NOM to be sent to Non-associated Unitholders in relation to the Proposed Transaction, without the prior written consent of KPMG Corporate Finance as to the form and context in which it appears. KPMG Corporate Finance consents to the inclusion of our report in the form and context in which it appears in the NOM.

Our opinion is based solely on information available as at the date of this report as set out in Appendix 2. We refer readers to the limitations and reliance on information section as set out in Section 5.3 of our report. In this respect, Non-associated Unitholders should recognise that our opinion is based on prevailing market, economic and other conditions at the date of this report and corresponds with a period of significant volatility in global financial markets and widespread macro-economic uncertainty associated with COVID-19. To the extent possible, we have reflected these conditions in our opinion. However, the factors driving these conditions can change over relatively short periods of time. The impact of any subsequent changes in these conditions on the global economy and financial markets generally, and the assets being valued specifically, could impact upon value in the future, either positively or negatively.

We note that we have not undertaken to update our report for events or circumstances arising after the date of this report other than those of a material nature which would impact upon our opinion.

All currency amounts in this report are denominated in Australian dollars unless otherwise stated. References to the financial year to 30 June have been abbreviated to FY, references to calendar year to 31 December have been abbreviated to CY and references to half years have been abbreviated as H1 or H2, as appropriate.

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The above opinion should be considered in conjunction with and not independently of, the information set out in the remainder of this report, including the appendices.

Yours faithfully

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Bill Allen Authorised Representative

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Sean Collins Authorised Representative

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Contents	Contents	Contents
PARTONE– INDEPENDENTEXPERT’SREPORT.............................................................................................. 1
1	Introduction ......................................................................................................................................... 1
2	Requirements for report ....................................................................................................................... 3
3	Opinion ................................................................................................................................................ 3
	3.1	Fairness ....................................................................................................................................... 4
	3.1.1	Value of the LFR Portfolio ..................................................................................................... 4
	3.2	Reasonableness ........................................................................................................................... 5
	3.2.1	Compatibility of the LFR Portfolio acquisition with HDN’s strategic plan and impact on
	portfolio metrics ....................................................................................................................................... 5
	3.2.2	Financial impact of the Proposed Transaction ........................................................................ 6
	3.2.3	Other factors ........................................................................................................................... 8
	3.2.4	Other considerations ............................................................................................................... 8
	3.2.5	Alternatives............................................................................................................................. 9
	3.2.6	Implications if the Proposed Transaction is not approved ...................................................... 9
	3.3	Other matters ............................................................................................................................. 10
4	The Proposed Transaction ................................................................................................................. 15
	4.1	Summary of the Proposed Transaction ..................................................................................... 15
	4.2	Conditions of the Proposed Transaction ................................................................................... 16
	4.3	Impact of the COVID-19 pandemic .......................................................................................... 16
5	Scope of the report ............................................................................................................................. 17
	5.1	Purpose...................................................................................................................................... 17
	5.2	Basis of assessment ................................................................................................................... 18
	5.3	Limitations and reliance on information ................................................................................... 19
6	Industry .............................................................................................................................................. 20
7	Profile of LFR Portfolio ..................................................................................................................... 25
	7.1	Box Hill..................................................................................................................................... 25
	7.2	Bundall ...................................................................................................................................... 25
	7.3	Mackay...................................................................................................................................... 25
	7.4	Marsden Park ............................................................................................................................ 26
	7.5	South Morang ........................................................................................................................... 26

© 2021 KPMG Financial Advisory Services (Australia) Pty Ltd, an affiliate of KPMG. KPMG is an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation.

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	7.6	Toowoomba .............................................................................................................................. 26
	7.7	Upper Coomera ......................................................................................................................... 27
8	Valuation of LFR Portfolio ................................................................................................................ 27
	8.1	Overview ................................................................................................................................... 27
	8.2	Methodology ............................................................................................................................. 28
	8.3	Critical assumptions .................................................................................................................. 29
	8.4	Rental evidence ......................................................................................................................... 30
	8.5	Outgoings .................................................................................................................................. 30
	8.6	Capitalisation rate ..................................................................................................................... 30
	8.7	Adjustments .............................................................................................................................. 31
	8.8	Market value range ................................................................................................................... 31
	8.9	Resultant capital value rate range ............................................................................................. 32
9	Profile of HDN .................................................................................................................................. 33
	9.1	Background ............................................................................................................................... 33
	9.1.1	HDN ..................................................................................................................................... 33
	9.1.2	Fees paid to HMC ................................................................................................................. 33
	9.2	Strategy ..................................................................................................................................... 34
	9.3	Property portfolio post acquisitions .......................................................................................... 35
	9.4	Financial performance............................................................................................................... 40
	9.5	Financial position ...................................................................................................................... 43
	9.6	Pro forma financial position ...................................................................................................... 45
	9.7	Outlook ..................................................................................................................................... 48
	9.8	Share capital and ownership ..................................................................................................... 48
	9.8.1	Major unitholders ................................................................................................................. 48
	9.9	Unit price performance ............................................................................................................. 50
	9.9.1	HDN recent trading in units .................................................................................................. 50
	9.9.2	Relative unit price performance ............................................................................................ 51
Appendix		1 – KPMG Corporate Finance Disclosures ................................................................................ 53
Appendix		2 – Sources of information ......................................................................................................... 54
Appendix		3 – Sales evidence ...................................................................................................................... 55
Appendix		4 – Box Hill Property Profile and Valuation .............................................................................. 56
Appendix		5 – Bundall Property Profile and Valuation ............................................................................... 62

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Appendix 6 – Mackay Property Profile and Valuation ............................................................................... 67 Appendix 7 – Marsden Park Property Profile and Valuation ..................................................................... 72 Appendix 8 – South Morang Property Profile and Valuation ..................................................................... 77 Appendix 9 – Toowoomba Property Profile and Valuation ....................................................................... 82 Appendix 10 – Upper Coomera Property Profile and Valuation ................................................................ 87 PART TWO – FINANCIAL SERVICES GUIDE .................................................................................................. 92

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4 The Proposed Transaction

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4.1 Summary of the Proposed Transaction

On 19 April 2021, HDN announced the Proposed Transaction, whereby HDN will acquire a 100% interest in the LFR Portfolio from HMC for cash consideration of $266.4 million, excluding stamp duty and transaction costs, representing a weighted average acquisition capitalisation rate of 6.75%.

In addition, HDN announced:

it had entered into an agreement to acquire a 100% interest in Armstrong Creek for cash consideration of $55.6 million, excluding stamp duty and transaction costs, representing a 6.0% capitalisation rate. Armstrong Creek is a newly completed neighbourhood centre, anchored by Coles, which opened for trade in September 2020
a $265.0 million 1 for 2.36 underwritten accelerated non-renounceable rights issue at an issue price of $1.295 per unit. HMC has committed to take up its full entitlement for its 26.6% holding in HDN. Unitholders (other than HMC) who take up their full or partial entitlement in the Entitlement Offer and investors issued units under the Entitlement Offer, will receive up to 1 Bonus Unit for every 20 units subscribed for in the Entitlement Offer, conditional on holding at least the same number of units, at a date 3 months after the retail Entitlement Offer issue date, as was held on the record date for the Entitlement Offer. Bonus Units will be issued for nil consideration

The issue of the Bonus Units is supported by HCL which has agreed to sell to HDN, via a selective buy-back, up to 10,231,213 units HCL holds, for nominal consideration. The number of units bought back will be the same as the number of Bonus Units that are to be issued under the Entitlement Offer

The units issued under the Entitlement Offer (excluding the Bonus Units) will be entitled to the distribution for the quarter ending 30 June 2021. The Bonus Units are expected to be issued in September 2021 and are expected to be entitled to the distribution for the quarter ending 30 September 2021

the Proposed Transaction and the Armstrong Acquisition, together with the associated transaction costs, are to be funded via a combination of existing cash reserves, the proceeds from the Entitlement Offer and through the drawing down of an additional $85 million from HDN’s existing debt facilities.

As part of their due diligence in relation to the LFR Portfolio, HDN have commissioned Savills to value each of the properties making up the LFR Portfolio as at 30 June 2021. As at the date of this report, Savills had provided HDN with the Draft June 21 Valuations, which showed a value for the LFR Portfolio of $283.7 million. Based on the Draft June 21 Valuations, HDN expects to book an immediate valuation uplift of $17.3 million in relation to the LFR Portfolio.

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Table 3: LFR Portfolio with Draft June 21 Valuations

Property
		Proposed fair value as
$ million unless otherwise stated	31-Dec-20 Valuation	at 30 June 20211		Uplift
*Proposed Transaction*
Box Hill, VIC	49.5		57.5	8.0
Bundall, QLD	31.8		35.5	3.7
Mackay, QLD	26.3		27.2	0.9
Marsden Park, NSW	52.0		57.3	5.3
South Morang, VIC	32.4		35.7	3.3
Toowoomba, QLD	29.1		32.0	2.9
Upper Coomera,QLD	45.3		38.5	(6.8)
Total	266.4		283.7	17.3

Source: Management, Investor Presentation and KPMG Corporate Finance analysis. Note 1: Proposed fair value is based on the Draft June 21 Valuations.

Based on the Draft June 21 Valuations, HDN will book an immediate valuation uplift of $17.3 million in relation to the LFR Portfolio.

Further details of the Proposed Transaction, the Armstrong Acquisition, the Entitlement Offer, the Bonus Units and the Selective Buy-Back are set out in the NOM to which this report is attached.

Transaction costs are estimated at $27.6 million, comprising the following:

Stamp duty payable on the acquisition of LFR Portfolio and the Armstrong Acquisition of $17.5 million, and
Transaction fees, including capital raising fees, adviser fees and acquisition fees paid to HMC, of $10.1 million.

4.2 Conditions of the Proposed Transaction

There are relatively few Conditions Precedent to the Proposed Transaction, including that the following ordinary resolution must be passed by the requisite majorities of unitholders:

Resolution 1: “That the acquisition by HMC Funds Management Limited as responsible entity of HomeCo Daily Needs REIT (or its related entities/nominees) of the LFR Portfolio from Home Consortium (or its related entities), on the terms and conditions summarised in the Explanatory Memorandum be approved for the purposes of Listing Rule 10.1 and for all other purposes."

Accordingly, if Resolution 1 is not passed, the Proposed Transaction will not proceed. Further details in relation to the resolutions are set out in the NOM to which this report is attached.

4.3 Impact of the COVID-19 pandemic

The timing of the Proposed Transaction corresponds with a period of unprecedented social and community disruption, as State and Federal governments seek to counter the impact of COVID-19.

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5.1

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The impact of the COVID-19 pandemic on value depends on the characteristics of the individual investments and their geographical location given different restrictions that may apply between States. In this regard, demand-based assets are most at risk from a downward value adjustment, particularly those investments exposed to the travel sector (e.g. airports) and directly correlated with gross domestic product ( GDP ) performance (e.g. ports). Availability based or regulated assets or assets related to essential services are expected to be more stable at a revenue level, unless broader economic pressures force changes to contractual mechanisms. However, demand-based assets will have the potential to recover more quickly when economic activity returns and will also be potential beneficiaries of government stimulus measures.

The profile of the recovery will likely be a more substantial determinant of value impact than the movement in equity markets or short-term declines in earnings. Contributing to the speed of recovery will be the success of the widespread Australian and global government stimulus measures announced to support industries and individuals in negotiating the downturn and the role out of vaccination programs. Whilst these stimulus measures may have softened the immediate impact of COVID-19, a number of these measures were withdrawn at the end of March 2021 and furthermore, the cost of funding these measures will potentially create a prolonged longer term drag on economic performance.

Scope of the report

Purpose

ASX Listing Rule 10.1 provides that a listed entity must ensure that neither it, nor any of its child entities, acquires a substantial asset from, or disposes of a substantial asset to, certain persons identified in ASX Listing Rule 10.1, including a related party or a substantial (10% +) securityholder, unless it obtains approval of the holders of its ordinary securities.

HMC is the controller of the Responsible Entity, and also holds, through HCL, a 26.6% equity interest in HDN. The Responsible Entity has appointed the Property Manager and the Investment Manager to provide certain asset management, investment management and development management services to HDN. The Responsible Entity, Property Manager and Investment Manager are wholly owned subsidiaries of HMC.

Under ASX Listing Rule 10.2, an asset is substantial if the value of the asset, or the value of the consideration paid for it is, or in ASX's opinion is, 5% or more of the company's equity interests as set out in the latest accounts lodged with ASX. Based on the most recent accounts lodged with ASX on 17 February 2021, HDN has equity interests of approximately $644.8 million. The total cash consideration to be paid to HMC for the LFR Portfolio is $266.4 million, which represents 41.3% of HDN's equity interests.

As the aggregate consideration to be paid for the LFR Portfolio exceeds the 5% threshold, the Proposed Transaction is considered to be the acquisition of a substantial asset for the purposes of ASX Listing Rule 10.1 and requires member approval under that Listing Rule. The notice of meeting to approve such a transaction must include an independent expert’s report which states whether the transaction is fair and reasonable to unitholders not associated with a party to the transaction. On this basis, the Independent Directors have requested KPMG Corporate Finance to prepare a report in accordance with ASX Listing Rule 10.1 and the guidance provided by ASIC.

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5.2 Basis of assessment

RG 111, issued by ASIC, indicates the principles and matters which it expects a person preparing an independent expert’s report to consider in providing an opinion on whether a related party transaction is ‘fair and reasonable’ from the perspective of non-associated members. RG 111.55 to RG 111.63 notes:

in assessing whether a related party transaction is ‘fair and reasonable’ the assessment should not be applied as a composite test
in relation to an asset acquisition by the entity (in this instance, HDN), it is ‘fair’ if the value of the financial benefit being offered by the entity to the related party is equal to or less than the value of the assets being acquired. Where the financial benefit given by the entity is securities in the entity and the consideration is securities in another entity held by a related party, the value of the entity’s securities should be compared to the value of the securities it is purchasing
in valuing the financial benefit given and the consideration received by the entity, an expert should take into account all material terms of the proposed transactions
a proposed related party transaction is ‘reasonable’ if it is ‘fair’
an offer might also be ‘reasonable’ if, despite being ‘not fair’, the expert believes that there are sufficient reasons for members to vote for the proposal. In such cases, in accordance with RG 111.61, the expert must clearly explain the meaning of this opinion
factors to be considered in deciding whether a proposed transaction is ‘reasonable’ might include:
the financial situation and solvency of the entity
opportunity costs
the alternative options available to the entity and the likelihood of those options occurring
the entity’s bargaining position
whether there is selective treatment of any security holder, particularly the related party
any special value of the transaction to the purchaser, such as particular technology or the potential to write off outstanding loans from the target, and
the liquidity of the market in the entity’s securities.

In forming our opinion as to whether the Proposed Transaction is fair and reasonable to Non-associated Unitholders, we have considered the following:

the rationale of the Proposed Transaction
a comparison of the assessed value of the LFR Portfolio with the Purchase Price. KPMG Property Consultancy Pty Limited, a related entity to KPMG Corporate Finance, has undertaken a valuation of the LFR Portfolio
the compatibility of the Proposed Transaction with HDN’s strategic plan and current portfolio
the impact of the Proposed Transaction on HDN’s financial performance and financial position

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the implications for HDN if the Proposed Transaction is not implemented, and
other qualitative and strategic issues associated with the Proposed Transaction and the extent to which, on balance, they may advantage or disadvantage Non-associated Unitholders.

5.3 Limitations and reliance on information

In preparing this report and arriving at our opinion, we have considered the information detailed in Appendix 2 of this report. In forming our opinion, we have relied upon the truth, accuracy and completeness of any information provided or made available to us without independently verifying it. Nothing in this report should be taken to imply that KPMG Corporate Finance has in any way carried out an audit of the books of account or other records of HDN for the purposes of this report.

Further, we note that an important part of the information base used in forming our opinion is comprised of the opinions and judgements of management. We have also had discussions with Management in relation to the nature of HDN’s business operations, specific risks and opportunities, historical results and prospects for the foreseeable future. This type of information has been evaluated through analysis, enquiry and review to the extent practical. However, such information is often not capable of external verification or validation.

HDN has been responsible for ensuring that information provided by it or its representatives is not false or misleading or incomplete. Complete information is deemed to be information which at the time of completing this report should have been made available to KPMG Corporate Finance and would have reasonably been expected to have been made available to KPMG Corporate Finance to enable us to form our opinion.

We have no reason to believe that any material facts have been withheld from us but do not warrant that our inquiries have revealed all of the matters which an audit or extensive examination might disclose. The statements and opinions included in this report are given in good faith, and in the belief that such statements and opinions are not false or misleading.

It is not the role of the independent expert to undertake the commercial and legal due diligence that a company and its advisers may undertake. The Independent Directors are responsible for conducting due diligence in relation to the Proposed Transaction. KPMG Corporate Finance provides no warranty as to the adequacy, effectiveness or completeness of the due diligence process, which is outside our control and beyond the scope of this report. We have assumed that the due diligence process has been and is being conducted in an adequate and appropriate manner.

The opinion of KPMG Corporate Finance is based on prevailing market, economic and other conditions at the date of this report and corresponds with a period of significant volatility in global financial markets and widespread macro-economic uncertainty associated with the COVID-19 pandemic. To the extent possible, we have reflected these conditions in our opinion. However, the factors driving these conditions can change over relatively short periods of time. The impact of any subsequent changes in these conditions on the global economy and financial markets generally, and the assets being valued specifically, could impact upon value in the future, either positively or negatively.

We note that we have not undertaken to update our report for events or circumstances arising after the date of this report other than those of a material nature which would impact upon our opinion.

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In preparing this report, KPMG Corporate Finance has had access to all financial information considered necessary in order to provide the required opinion. HDN has requested KPMG Corporate Finance limit the disclosure of some commercially sensitive information relating to HDN and/or the LFR Portfolio. This request has been made on the basis of the confidential nature of this information. As such the information in this report has been limited to the type of information that is regularly provided to HDN unitholders.

Industry

Retail property sector

The retail property sector comprises entities engaged in the ownership and management of retail property such as shopping centres. Retail properties can be categorised according to Property Council of Australia standards as follows:

city (i.e. retail premises within an arcade or mall development located in central business district ( CBD ) locations with Gross Lettable Area Retail ( GLAR ) of over 1,000 sqm
super regional (i.e. major shopping centre typically with two full-line department stores, one or more full-line discount department stores, supermarkets, entertainment precincts and over 250 specialty stores, with GLAR greater than 85,000 sqm)
regional (i.e. shopping centre typically with one full-line department store, one full-line discount department stores, supermarkets, entertainment precinct and over 100 specialty stores, with GLAR of 30,000 to 85,000 sqm)
sub regional (i.e. shopping centre typically with one full-line department store, a supermarket, entertainment precinct and over 40 specialty stores, with GLAR of 10,000 to 30,000 sqm)
neighbourhood (i.e. a local shopping centre with a supermarket and approximately 35 specialty stores, with GLAR of less than 10,000 sqm) and
large format retail (i.e. medium to large sized shopping centre dominated by large format retailers with GLAR of more than 5,000 sqm).[20]

Recent performance

The COVID-19 pandemic had an immediate impact on retail performance across all sectors in April 2020, with government lockdowns resulting in a positive impact on neighbourhood centres, as people shopped locally, at the expense of the larger super-regional, regional and sub-regional sized centres. Further, the lockdowns resulted in an unprecedented increase the number of people working from home, which negatively impacted foot traffic and retail performance in CBD locations. As consumers shifted to shopping locally, neighbourhood centres with supermarkets and a predominance of non-discretionary spend type tenants outperformed. Government stimulus through “Jobkeeper” and other schemes, together with restrictions on travel and the increase in numbers of people working from home saw a boost in retail

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sales, particularly in fitness, home office furniture and equipment and home renovation categories, reflective of typical large format centre tenants.[ 21]

The introduction of the National Code of Conduct ( NCC ) by the Federal government and adopted by the respective State governments had a negative impact on rent collections within these retail centres.

Transactions of retail assets totaled $4.3 billion in 2020, which was down 39% from the $7.2 billion of transactions recorded in 2019.[22] There was negative sentiment towards the larger regional and CBD centres with no regional centre sales post March during 2020 and valuation assessment of such assets reflecting:

higher capitalisation rates
reduced market rent expectations
reduced rental growth over the next three years
reduced probability of tenant renewal
lengthening vacancy periods for vacancies with expectations of store closures
increased allowances for rental arrears and bad debts through the introduction of income stabilisation allowances, and
increased owner’s contributions to marketing.

Overall values of the larger regional centres declined during 2020, coupled with a shift in investment mandates by a number of the REIT’s and larger investors away from large retail assets to smaller centres and industrial assets.

Consequently, neighbourhood centres[23] and large format retail centres[24] benefited from increased interest from investors and a number of these types of properties transacted during 2020 and into 2021, at prices reflecting decreasing investment yields.

Some retail tenants have begun to rationalise store networks, closing unprofitable stores or those at/close to lease expiry, as retailers seek to establish a strong presence on online platforms.[25] Tourism restrictions, as well as a decline in consumer confidence, has led to the average vacancy rates across all Australian retail sub-sectors (excluding large format retail) increasing to a record high of 6.9% in 2020.[26] Vacancy rates for city assets were particularly exposed to the impacts of the COVID-19 pandemic, as a result of

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domestic and international border closures and the transitioning of CBD office tenants to working from home for a prolonged period.[27]

Rents have declined across a majority of the sub-sectors, with the national average falling by 6% in the year to December 2020, as retail tenants were impacted by a decrease in foot traffic and retail sales.[28] Despite the phasing out of the Federal government’s stimulus measures, consumer spending and retail turnover is expected to remain elevated in the first half of 2021,[29] buoyed by the build-up in household savings, the rollout of a COVID-19 vaccine and the positive wealth effect which has been realised through a recovery in house prices and a strong share market. The growth of online retailing, which flourished in the COVID-19 pandemic, is expected to continue moving forward, as many retailers will look to rationalise store networks and close unprofitable stores, preferring to focus further on online retailing.[30] The structural shift to online retailing is expected to further impede the ability for landlords to negotiate attractive leasing terms and realise positive re-leasing spreads, and to maintain strong occupancy rates. The prevalence of online retailing is also evident in the expected decrease in physical retail space that is required per capita.[31] Consequently non-discretionary spend tenants in neighbourhood and large format retail centres continue to perform well.

Large format retail sub-sector

Recent performance

In 2020, approximately 492,000 sqm of large format retail space was brought to the market, as demand and competition for large format retail centres grew.[32] This coincided with strong institutional investor interest within the subsector due to the asset class’ strong performance during the COVID-19 pandemic, despite tenant disruption and resultant cash flow impacts in other types of centres.[33]

Large format retail tenants were among the key beneficiaries in the changes of consumer spending trends in 2020, as fitness, home office, furniture and home renovation all recorded a boost in sales as a result of the COVID-19 induced lockdowns. Household goods sales grew by 17.1% year-on-year to December 2020, implying an additional $10 billion of spending per annum.[34] The Federal government’s

‘HomeBuilder’ grant has also strengthened spending in large format retail tenant categories. Large format retail trade was also supported by the fact that majority of the household goods retailers were able to operate through the peak of the COVID-19 pandemic, with many of the retailers being able to maintain social distancing due to the large size of most stores.[35]

28 JLL Australia Retail Market Overview 4Q20

29 CBRE Market Outlook Retail 2021

30 JLL Shopping Centre Investment Review & Outlook 2021

31 CBRE Market Outlook Retail 2021

32 CBRE Australia Retail, Q4 2020

33 Colliers Capital Markets: Retail Investment Review 2021

34 JLL Shopping Centre Investment Review & Outlook 2021

35 JLL Shopping Centre Investment Review & Outlook 2021

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As a result of the strong trading performance, large format retail centre owners were able to report the highest rate of rent collection (approximately 90%) relative to other sub-sector landlords, throughout the COVID-19 pandemic.[36] Research showed prime face rents increased during 2020[37] whilst national vacancy rates for large format retail assets fell from 4.6% in Q4 2019 to 3.4% in Q4 2020.[38]

Yields also compressed,[39] largely driven by the establishment of new consumer spending trends since the onset of the COVID-19 pandemic and competitive investor demand for large format retail assets.[40]

Outlook

The tenant weighting of large format retail centres towards household goods retailers will also benefit the sub-sector going forward, as spend on furniture, electrical goods, building materials and household goods is expected to remain elevated for 2021.[41] The Federal government’s ‘HomeBuilder’ grant is likely to accelerate residential construction in 2021, which will drive further demand for building materials and household goods.

Rents are expected to remain firm in 2021, with rental growth across the sub-sector expected in 2022.[42]

The demand for large format retail centres is expected to remain strong, as investors seek out exposure to non-discretionary and defensive assets. The demand is likely to be further strengthened by the excess of offshore capital currently in the market, as overseas investors continue to express interest and appetite for the Australian retail sector.[43] Strong fundamentals and comparatively higher yields, compared to other retail sub-sectors, is also likely to draw investors towards large format retail centres. There is also a potential for a further yield improvement for large format retail centres, as investors focus on investing in non-discretionary retail assets with long WALEs.[44]

Neighbourhood sub-sector

Recent performance

Throughout 2020, neighbourhood retail has remained resilient despite the onset of the COVID-19 pandemic, as consumer demand for non-discretionary and daily needs retail strengthened. Over 200,000 sqm of neighbourhood assets were brought to the market in 2020,[45] in a year where neighbourhood retail centre sales accounted for the largest dollar share of the retail investment market. There were a reported 35 neighbourhood assets transacted in 2020 for a combined value of $1.5 billion,[46] highlighting the

39 CBRE Australia Retail, Q4 2020

41 CBRE Market Outlook Retail 2021

42 CBRE Market Outlook Retail 2021

43 JLL Shopping Centre Investment Review & Outlook 2021

44 JLL Shopping Centre Investment Review & Outlook 2021

45 CBRE Australia Retail, Q4 2020

46 Colliers Capital Markets: Retail Investment Review 2021

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attractiveness of this sub-sector asset class compared to other sub-sectors for investors. The strong supply and investment in this sub-sector is underpinned by investors’ preference for non-discretionary based centres, where a large share of the centres’ income is from more defensive tenants such as supermarkets and chemists.[47]

Neighbourhood retail centres’ strong performance during the COVID-19 pandemic was highlighted by the high rates of rent collection relative to other retail sub-sectors,[48] which was predominately driven by the strong sales in supermarkets, whose safe haven appeal was cemented during the COVID-19 pandemic as they continued to trade regardless of the various COVID-19 pandemic induced lockdowns.[49] Nationally, vacancy rates for neighbourhood retail centres were not immune to the rising vacancy rate trend across the wider retail sector, with vacancy rates increasing from 4.4% in Q4 2019 to 5.8% in Q4 2020,[50] as neighbourhood retail centre assets have a higher proportion of independent tenants (nonnational chains) who are more exposed to the negative impacts of the COVID-19 pandemic.[51]

Yields have compressed slightly for neighbourhood retail centres as a result of the sub-sector’s fundamentally strong performance throughout the COVID-19 pandemic. The liquidity in the private investor and syndicator market has also supported yields as investors look to capitalise on the low cost of debt.[52]

Outlook

Rents are expected to stabilise in 2021 with rental growth forecast for neighbourhood retail centres in 2022.[53]

The strong demand for neighbourhood retail centres in 2020 has continued into 2021, as investors remain attracted to the secure income streams of the anchor tenants and daily needs retailers who performed particularly well during the COVID-19 pandemic.[54] Furthermore, the theme of risk aversion in retail in 2021 will likely continue to drive investor interest in this sub-sector compared to the majority of other retail sub-sectors,[55] which will likely keep downward pressure on yields.[56]

As a range of private investors and syndicators are actively seeking exposure to defensive nondiscretionary and convenience based retail centres, together with the current low cost of debt, there is the potential for further decreases in neighbourhood yields.[57]

47 CBRE Australia Retail, Q4 2020

48 JLL Shopping Centre Investment Review & Outlook 2021

49 Colliers Capital Markets: Retail Investment Review 2021

50 JLL Shopping Centre Investment Review & Outlook 2021

51 JLL Shopping Centre Investment Review & Outlook 2021

52 JLL Shopping Centre Investment Review & Outlook 2021

53 CBRE Market Outlook Retail 2021

54 M3property: An eye to 2021, Australian Shopping Centre Market Update

55 JLL Shopping Centre Investment Review & Outlook 2021

56 M3property: An eye to 2021, Australian Shopping Centre Market Update

57 JLL Shopping Centre Investment Review & Outlook 2021

© 2021 KPMG Financial Advisory Services (Australia) Pty Ltd, an affiliate of KPMG. KPMG is an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International
Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation.

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Profile of LFR Portfolio

The properties comprising the LFR Portfolio are briefly described below with additional information contained in the relevant appendix.

7.1 Box Hill

The Box Hill property comprises a large format retail centre situated on an “Industry 1” zoned site of 39,602 sqm situated on the corner of Middleborough Road and Ailsa Street in the suburb of Box Hill South, VIC, approximately 15.5 radial kilometres east of the Melbourne GPO, summarised as follows:

Table 4: Box Hill summary of characteristics

Property	No. of Tenancies	GLA1	Occupancy	WALE by Income
		(sqm)	(%)	(years)
Box Hill	16	13,873	100%	8.6

Source: KPMG Corporate Finance analysis. Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

This property is more fully described at Appendix 4.

Bundall

The Bundall property comprises a large format retail centre situated on a “Mixed Use, Fringe Business Precinct” zoned site of 16,450 sqm situated between Bundall Road and Upton Street in the suburb of Bundall, on the Gold Coast, QLD, approximately two radial kilometres west of Surfers Paradise, summarised as follows:

Table 5: Bundall summary of characteristics

Property	No. of Tenancies	GLA1	Occupancy	WALE by Income
		(sqm)	(%)	(years)
Bundall	11	10,458	100%	5.3

Source: KPMG Corporate Finance analysis. Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

This property is more fully described at Appendix 5.

7.3 Mackay

The Mackay property comprises a large format retail centre situated on a “Specialised Centre” zoned site of 108,730 sqm situated on the corner of Holts Road and Mackay Bucasia Road in Mackay, QLD, approximately five radial kilometres north west of the Mackay CBD, summarised as follows:

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Table 6: Mackay summary of characteristics

Property No. of Tenancies	GLA1 Occupancy WALE by Income (sqm) (%) (years)
Mackay 11	11,929 99% 4.9

Source: KPMG Corporate Finance analysis. Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

The Mackay property is not fully developed with additional rear land, extending to an estimated area of approximately 64,486 sqm, suitable for future redevelopment.

This property is more fully described at Appendix 6.

Marsden Park

The Marsden Park property comprises a large format retail centre situated on a “B5 Business Development” zoned site of 34,920 sqm situated on the corner of Hollinsworth Road, Chifley Glade and Richmond Road in the suburb of Marsden Park, NSW, approximately 37 radial kilometres north-west of the Sydney GPO, summarised as follows:

Table 7: Marsden Park summary of characteristics

Property	No. of Tenancies	GLA1	Occupancy	WALE by Income
		(sqm)	(%)	(years)
Marsden Park	15	11,507	100%	4.9

Source: KPMG Corporate Finance analysis. Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

This property is more fully described at Appendix 7.

7.5 South Morang

The South Morang property comprises a large format retail centre situated on a “Commercial 2 Zone” zoned site of 35,870 sqm situated on the corner of Plenty Road and McDonalds Road in the suburb of South Morang, VIC, approximately 21 radial kilometres north-east of the Melbourne GPO, summarised as follows:

Table 8: South Morang summary of characteristics

	Property	No. of Tenancies	GLA1	Occupancy	WALE by Income
			(sqm)	(%)	(years)
	South Morang	12	11,192	100%	5.6

Source: KPMG Corporate Finance analysis. Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

This property is more fully described at Appendix 8.

7.6 Toowoomba

The Toowoomba property comprises a large format retail centre situated on a “Major Centre” zoned site of 32,248 sqm situated in Kearneys Spring at Toowoomba, QLD, approximately four radial kilometres south of the Toowoomba CBD, summarised as follows:

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Table 9: Toowoomba summary of characteristics

Property No. of Tenancies	GLA1 Occupancy WALE by Income (sqm) (%) (years)
Toowoomba 7	11,360 97% 5.8

Source: KPMG Corporate Finance analysis. Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

This property is more fully described at Appendix 9.

Upper Coomera

The Upper Coomera property comprises a large format retail centre situated on a “Centre” zoned site of 34,990 sqm situated on the corner of Coomera Grand Drive, Days Road and Old Coach Road in the suburb of Upper Coomera, in the Brisbane-Gold Coast corridor, QLD, approximately 22 radial kilometres north west of Surfers Paradise, summarised as follows:

Table 10: Upper Coomera summary of characteristics

Property	No. of Tenancies	GLA1	Occupancy	WALE by Income
		(sqm)	(%)	(years)
Upper Coomera	13	11,261	94%	7.0

Source: KPMG Corporate Finance analysis. Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

This property is more fully described at Appendix 10.

Valuation of LFR Portfolio

Overview

We have assessed a market value range for each property making up the LFR Portfolio ( Properties ) as at 30 June 2021 (the Valuation Date ).

The International Valuation Standards (2020) at IVS 104, defines market value as the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

The Properties are leased assets and therefore the buyer profile would likely be an investor. The investment market for large format retail properties is considered to be a national market, with parties to transactions willing to invest across State borders. Consequently, when applying the methodologies discussed below, we have investigated sales and rental evidence for properties across Australia in determining our market value range.

We summarise our valuation conclusions below.

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Table 11: Summary of valuation conclusions

Property	GLA1	WALE	Adopted Capitalisation Rate Range	Adopted Capitalisation Rate Range	Market	Value Range	Resultant Capital Value Rate	Resultant Capital Value Rate
	(sqm)	(years)	(%)	(%)	($ m)	($ m)	($ psm)	($ psm)
Box Hill	13,873	8.6	6.25%	6.00%	55.7	58.1	4,015	4,188
Bundall	10,458	5.3	6.75%	6.50%	34.4	35.8	3,289	3,423
Mackay	11,929	4.9	7.50%	7.25%	26.8	27.6	2,247	2,314
Marsden Park	11,507	4.9	5.50%	5.25%	53.8	56.4	4,676	4,902
South Morang	11,192	5.6	6.50%	6.25%	35.6	37.1	3,181	3,315
Toowoomba	11,360	5.8	7.00%	6.75%	31.5	32.7	2,773	2,879
Upper Coomera	11,261	7.0	6.25%	6.00%	37.8	39.4	3,357	3,499
Total	81,580				275.6	287.1

Source: KPMG Corporate Finance analysis. Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

Methodology

Given the investment nature of the Properties, we have relied primarily on an Income Approach, crosschecked through a Market Approach, to derive a market value range.

Income approach

The Income Approach is a valuation approach that provides an indication of value by converting future cash flows to a single current capital value. There are a number of Income Approach techniques and typically there are reasons that may advantage or dictate the selection of one or more particular techniques for any given property, such as variances in land use, number of tenancies, quantum of value, stability of income and reporting purpose.

In our application of the Income Approach we have adopted the capitalisation method which reflects the income earning potential and investment return for the subject property. The method involves the application of a capitalisation rate (multiplier) to a forecast future income. The capitalisation rate is selected from comparison of resultant or implied yields derived from the analysis of transactions or in some cases benchmarked against other competing investments. Analysed yields typically are the return represented by the net operating income produced by an investment, expressed as a percentage of the transaction value of that investment. There are numerous ways in which to analyse potential returns from a property investment. Typically lease terms are the main variable that determines the appropriate selection of any particular yield analysis.

The key inputs used to assess each Property’s market value include:

Income – derived from the signed leases and signed MoUs for each Property and benchmarked to other rental evidence
Outgoings – derived from outgoings budgets and benchmarked to other properties
Capitalisation rate – derived from analysis of comparable transactions, and

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Adjustments – for current vacancies, imminent expiries (where lease expiry is within 24 months), outstanding incentives, reversions where passing rental differs to our adopted market rental, budgeted capital expenditure and balance land.

Market Approach

There are various applications of methodologies and techniques in a market based approach, with the leading method being the Comparable Transactions Method. Within the Comparable Transactions Method there are various applications, including comparing properties either directly on a unit based measure or applying a summation technique. The summation technique provides an indication of the value of an entire asset by the addition of the separate values of its component parts.

Different property types lend themselves to various applications of sales comparison and the selection of the most appropriate method of comparison is typically guided by homogeneity or otherwise between the subject property and benchmark sales and the correlation between units of measure and economic return. It is possible to compare properties in absolute quantum whereby some form of market continuum can be constructed within which the subject property can be positioned. It is also possible to make percentage or dollar adjustments for the various differences in comparable transactions to effectively adjust these sale prices to indicate a value of the subject property.

Our comparisons made with any particular transaction may include variables such as size, land classification/zoning, locality, position within the locality, elevation, aspect, topography, access, available services and amenity, land use, adjacent and nearby land uses, site specific allowances, various external site impacts, further development potential. We also consider the type, size, quality, configuration, condition, age, aesthetic appeal and overall utility of the improvements.

For large format retail properties, the market comparison approach typically involves a comparison on a rate per square metre of GLA.

8.3 Critical assumptions

In undertaking our valuation of the Properties, we have made the following critical assumptions:

full compliance with all applicable federal, state and local zoning, use and similar laws is assumed
responsible ownership and competent management of the Property is assumed
that the interests registered on Title do not have a negative impact on value
that all buildings are compliant with relevant building regulations. We did not (and are not qualified to) carry out a structural, geotechnical or environmental survey
no hazardous substances or contamination of the site exits. We did not investigate the extent of any hazardous substances as we are not qualified to test for such substances or conditions. We take no responsibility for detecting the existence of such substances or conditions, or for any expertise or engineering knowledge required to detect or discover them
that all licenses, permits and other legislative authorities from any government or private organisation have been obtained and can be renewed and
that the information provided by Management, including the following, is true and correct:

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Tenancy Schedule
Outgoings Budget
Outstanding Incentives
Signed MoUs
Arrears Reports
Capital expenditure budgets, and
Leases.

8.4 Rental evidence

We have reviewed the current rentals payable for each tenancy area at each Property in comparison to available rental evidence. This evidence has been derived from a variety of sources including discussions with agents and valuers active in the large format retail sector.

Rental rates are reflective of:

location
size and configuration of tenancies
quality, condition and functionality of improvements, and
market conditions.

We have assessed and adopted a market rental rate for all tenancy areas including currently vacant areas and have made allowances where passing rental differs to our adopted market rental.

8.5 Outgoings

Management have provided us with outgoings budgets, which we have reviewed and adopted as appropriate for the properties.

8.6 Capitalisation rate

The sales evidence for large format retail centres, as detailed in Appendix 3, range in price from $8.4m to $97.0m with key metrics summarised in the table below:

Table 12: Market evidence summary

	Initial Yield	Capital Value Rate
	(%)	($ psm)
High	8.21%	4,788
Low	3.95%	2,191

Source: KPMG Corporate Finance analysis.

In determining an appropriate capitalisation rate range for each property, we have considered the following:

strength of lease covenants afforded by the existing tenants

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WALE
annual rental review profiles based on CPI or fixed percentage increases, with market reviews at commencement of option periods
prevailing market conditions
the available sales evidence
current interest rate environment
alternative returns from other asset classes, and
overall price point.

Having regard to the available sales evidence and the aforementioned points we have adopted the following rates in our valuation calculations. Refer to the indicated appendix for a more detailed discussion of the factors considered in adopting the respective capitalisation rate ranges.

Table 13: Adopted capitalisation rate range

Property	Adopted Capitalisation Rate Range	Adopted Capitalisation Rate Range	Reference
	(%)	(%)
Box Hill	6.25%	6.00%	Appendix 4
Bundall	6.75%	6.50%	Appendix 5
Mackay	7.50%	7.25%	Appendix 6
Marsden Park	5.50%	5.25%	Appendix 7
South Morang	6.50%	6.25%	Appendix 8
Toowoomba	7.00%	6.75%	Appendix 9
Upper Coomera	6.25%	6.00%	Appendix 10

Source: KPMG Corporate Finance analysis.

Adjustments

We have made adjustments in our valuation calculations for:

letting up allowances for current vacancies
re-letting allowances for imminent expiries (where lease expiry is within 24 months)
outstanding incentives
reversions where passing rental differs to our adopted market rental
budgeted capital expenditure, and
balance land.

8.8 Market value range

We have determined the following market value ranges for the respective Properties as at Valuation Date to be:

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Table 14: Valuation ranges

Property
	($ m)	($ m)
Box Hill	55.7	58.1
Bundall	34.4	35.8
Mackay	26.8	27.6
Marsden Park	53.8	56.4
South Morang	35.6	37.1
Toowoomba	31.5	32.7
Upper Coomera	37.8	39.4
Total	275.6	287.1

Source: KPMG Corporate Finance analysis.

Resultant capital value rate range

We have checked our valuations through a market comparison approach analysed on a rate per square metre of GLA. The resultant capital value rates are summarised in the table below. Refer to the indicated appendix for a more detailed discussion of the factors considered for the respective resultant capital value ranges.

Table 15: Resultant capital value rates

Property GLA1 Reference (sqm) ($ m) ($ m) ($ psm) ($ psm) Value Range Resultant Capital Value Rate Range	Property GLA1 Reference (sqm) ($ m) ($ m) ($ psm) ($ psm) Value Range Resultant Capital Value Rate Range
Box Hill 13,873 55.7 58.1 4,015 Bundall 10,458 34.4 35.8 3,289 Mackay2 11,929 26.8 27.6 2,247 Marsden Park 11,507 53.8 56.4 4,676 South Morang 11,192 35.6 37.1 3,181 Toowoomba 11,360 31.5 32.7 2,773 Upper Coomera 11,261 37.8 39.4 3,357	4,188 Appendix 4 3,423 Appendix 5 2,314 Appendix 6 4,902 Appendix 7 3,315 Appendix 8 2,879 Appendix 9 3,499 Appendix 10

Source: KPMG Corporate Finance analysis. Notes:

1. Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

2. Includes balance land.

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9 Profile of HDN

9.1 Background

9.1.1 HDN

HDN is an externally managed Australian REIT that owns convenience focused retail and service assets across its target sub-sectors of neighbourhood retail, large format retail and health & services. HDN, which listed on the ASX in November 2020, was established as a standalone entity from HMC to deliver HMC unitholders an investment in two vehicles with different investment attributes and characteristics. The construction of the HDN portfolio is weighted towards an owned portfolio of stabilised, convenience and metro-located assets, that have a diversified and high quality tenant mix.

HDN, which was registered as a managed investment scheme by HMC, maintains an ongoing relationship with HMC, as its Responsible Entity, Investment Manager and Property Manager are all wholly owned subsidiaries of HMC. Prior to the announcement of the Proposed Transaction HDN had a market capitalisation of approximately $625.4 million[58] .

As at 31 December 2020, HDN owned a portfolio of 19 freehold properties, which included 17 operating freehold properties and two development[59] freehold properties, that were independently valued at $978 million[60] . HDN’s portfolio allocation as at 31 December 2020 comprised neighbourhood retail (55%) (including 40% non-specialty and 15% specialty), large format retail (25%) and health & services (20%).[61]

9.1.2 Fees paid to HMC

Under the constitution, the Responsible Entity is entitled to be paid a fee equal to 1% per annum of GAV (plus GST) on a pro-rata basis, however this fee will not be paid whilst the Property Manager and Investment Manager are receiving fees under the management agreements. In addition to any fees, the Responsible Entity will be reimbursed for all expenses incurred including those associated with the establishment, promotion and operation of HDN.

The Investment Manager base fees, which are payable monthly in arrears, are calculated as 0.65% per annum of GAV up to $1.5 billion and 0.55% per annum for the amount by which the GAV exceeds $1.5 billion. The Investment Manager will also typically charge other investment-related fees such as acquisition and disposal fees, being 1.0% of purchase price and 0.5% of sales price respectively. In addition, the Investment Manager will be reimbursed for all reasonable expenses properly incurred in the performance of the services, including taxes and amounts it pays to third parties for which it is separately indemnified.

60 Including Parafield, SA (noting it will be reclassified as an investment property in the 30 June 2021 financial statements).

61 Based on 1H21 Financial Results Presentation.

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The Property Manager base fees are calculated as 3.0% of gross income for each property per month. The Property Manager typically re-charges other property-related fees such as new tenant lease, lease renewal, development management, lease administration and design fees. The Property Manager will also be reimbursed for all reasonable expenses properly incurred in the performance of the services.

The following fees are recognised as the Property Manager and Investment Manager services are rendered.

Table 16: Summary of HDN fees

Type of fee	Fee	Comment
		1.00% p.a. of the GAV. The fee will not be paid when the Property
Responsible Entity fees	1.00%	and Investment Manager are receiving fees under the management
		agreements
*Investment manager fees*
Base management fee	0.55%-0.65%	0.65% p.a. of GAV up to $1.5 billion 0.55% p.a. of the GAV in excess of $1.5 billion
Acquisition fee	1.00%	% of the purchase price of any assets directly or indirectly acquired
Disposal fee	0.50%	% of the sale price of any assets directly or indirectly disposed
*Property Manager fees*
Property management fee	3.00%	% of gross income for each property for each month
New tenant lease fee	15.00%	% of the face rent for the first year of the lease term where the tenant is new to the property
		% of the face rent for the first year of a new lease if an existing
Lease renewal fee	7.50%	tenant enters into a new lease, to continue leasing their current
		tenancy in the property
		5.00% of the development costs in relation to the first $2.5 million of
Development management fee	3.00%-5.00%	the project costs at each project
		3.00% of the development costs thereafter
Lease administration and design fee	n/a	charged on a cost recovery basis, unless payable by the tenant

Source: HDN 1H21 Financial Report.

Strategy

HDN’s objective is to provide unitholders with a consistent and growing distribution stream through exposure to a portfolio of stabilised, predominately convenience based and metro located assets. An overview of the target sector allocation ranges by sub-sector, which are unchanged from the targets disclosed in the HDN Product Disclosure Statement, issued in October 2020 (PDS), are set out in the following table.

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Table 17: HDN sub-sector allocation

Sub-sector	Target range
Neighbourhood1	50%
Large Format Retail	30%
Health & Services	20%

Source: HDN 1H21 Results Presentation. Note 1: Includes non-specialty and specialty neighbourhood assets.

Specifically, HDN aims to realise its objectives by:

Diversification of portfolio exposure: maintaining high quality, diversified and defensive exposures across target sub-sectors (neighbourhood retail, large format retail and health & services), tenants and geographies
Portfolio construction: employing a model portfolio construction, which is informed by long term historical returns across sub-sectors, that has outperformed and displayed relatively low levels of correlation to the traditional retail sub-sectors in recent years (e.g. department stores, discount department stores and discretionary retail)
Acquisition opportunities: pursuing acquisition opportunities across the target sub-sectors, focusing on convenience based daily needs real estate that provides value-accretive investment opportunities, which are in line with HDN’s portfolio strategy and which are expected to contribute to consistent and growing distributions
Capital management: maintaining an appropriate capital structure by ensuring gearing is within the target gearing range (currently 30% to 40%) and remaining in compliance with all debt financial covenants, and
Accretive developments: in addition to the developments of the Ellenbrook, WA and Richlands, QLD properties, HDN will seek to redevelop existing properties across the portfolio. HDN has identified a pipeline of value enhancing development opportunities and will seek to mitigate delivery and development risk to ensure that the developments will lead to future distribution growth for unitholders.

9.3 Property portfolio post acquisitions

Portfolio overview

Following the Proposed Transaction and the Armstrong Acquisition, HDN will own 27 freehold properties including 25 established properties and 2 properties under development. The combined freehold portfolio will have a GLA of approximately 316,466 sqm, a combined value of $1,300 million[62] , occupancy of 98.1%, a WACR of 6.09% and a WALE of 8.0 years. Management has prepared the following summary of HDN’s key portfolio statistics as at 31 December 2020 (unless otherwise noted), together with the pro forma impacts of the Armstrong Acquisition and the Proposed Transaction.

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Table 18: HDN portfolio key statistics

	31-Dec-201	Armstrong Acquisition2	Proposed Transaction2	Pro forma as at 31-Dec-203
Freehold operating properties	17	1	7	25
Freehold developmentproperties4	2	-	-	2
Total number of freehold properties	19	1	7	27
Fair value of freehold properties ($million)	977.8	55.6	266.4	1,299.8
WACR (%)5	5.91%	6.00%	6.75%	6.09%
Occupancy (by GLA)6	98.7%	82.0%	98.8%	98.1%
Trading occupancy (by GLA)6	96.7%	62.0%	96.7%	95.3%
WALE (years)7	8.1	9.5	7.0	8.0
Site coverage ratio (%)	31.7%	48.0%	27.1%	30.7%
GLA (sqm)	224,359	9,847	82,260	316,466

Source: Management, HDN 1H21 Results Presentation, Investor Presentation and KPMG Corporate Finance analysis.

Notes:

1. Portfolio statistics as at 31 December 2020 reflect the 31 December 2020 revaluations in addition to the acquisitions of Marsden Park, QLD and Bunnings Seven Hills, NSW. Parafield, SA is included (noting it will be reclassified as an investment property in the 30 June 2021 financial statements).

2. The fair values adopted for the LFR Portfolio properties and Armstrong Creek are the relevant agreed purchase prices.

3. Pro forma portfolio as at 31 December 2020 includes the impact of the Armstrong Acquisition and the Proposed Transaction, as well as the reclassification of the Parafield, SA property as an investment property (noting it will be reclassified in the 30 June 2021 financial statements). The proposed revaluations expected to arise as a result of the Draft June 21 Valuations are excluded.

4. The development properties are Ellenbrook, WA and Richlands, QLD.

5. Calculated based on the fair value of properties as at 31 December 2020.

6. By GLA as at June 2021 for the Armstrong Acquisition and Proposed Transaction. Excludes impact of rental guarantee for Armstrong Creek.

7. By gross income for signed leases and signed MoUs across all HDN assets as at 31 December 2020.

Geographic and sub-sector diversification

An overview of the impact that the Armstrong Acquisition and Proposed Transaction has on the composition of the HDN portfolio as at 31 December 2020 by geography (by property value) and subsector (by gross income) is set out in the following figures.

As at 31 December 2020

The composition of HDN’s property portfolio as at 31 December 2020 by geography (by property value) and sub-sector (by gross income) is illustrated in the following figures.

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Figure 2: Portfolio by geography Figure 3: Portfolio by sub-sector

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----- Start of picture text -----

SA
WA Specialty
2%
11% Neighbourhood
15% Non-specialty
Neighbourhood
40%
QLD NSW
17% 44% Health &
Services
20%
VIC Large Format Retail
25%
25%
----- End of picture text -----

Source: Management, differences may exist due to rounding.

HDN’s property portfolio, at 31 December 2020, was concentrated in NSW and VIC (69% in total), with NSW representing 44% and VIC 25% of the total property value. The portfolio was predominately comprised of neighbourhood retail centres (non-specialty and specialty), which represented 55% of the portfolio. At 31 December 2020, the neighbourhood weighting was above the target range (50%), while large format retail was below target (30%) and health & services was at the target range (20%).

31 December 2020 pro forma (including Armstrong Acquisition)

The composition of HDN’s pro forma property portfolio (including the Armstrong Acquisition) as at 31 December 2020 by geography (by property value) and sub-sector (by gross income) is illustrated in the following figures.

Figure 4: Pro forma portfolio by geography Figure 5: Pro forma portfolio by sub-sector

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SA
WA Specialty
2%
11% Neighbourhood
15% Non-specialty
Neighbourhood
QLD NSW 40%
17% 41% Health &
Services
20%
VIC Large Format Retail
25%
29%
----- End of picture text -----

Source: Management, differences may exist due to rounding.

Post the Armstrong Acquisition, HDN’s pro forma property portfolio will be concentrated in NSW and VIC (70% total), with NSW representing 41% and VIC 29% of the total property value as at 31 December 2020. As a result of the Armstrong Acquisition, the weighting towards VIC will increase. The pro forma portfolio will be predominately comprised of neighbourhood retail centres (non-specialty and specialty), which will represent 55% of the portfolio. The neighbourhood weighting will be above the target range (50%), while large format retail will be below target (30%) and health & services at the target range (20%).

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31 December 2020 pro forma (including Armstrong Acquisition and Proposed Transaction)

The composition of HDN’s pro forma property portfolio (including the Armstrong Acquisition and the Proposed Transaction) as at 31 December 2020 by geography (by property value) and sub-sector (by gross income) is illustrated in the following figures.

Figure 6: Pro forma portfolio by geography Figure 7: Pro forma portfolio by sub-sector

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WA SA Specialty
9% 1% Neighbourhood Non-specialty
13%
Neighbourhood
NSW 32%
37%
QLD Health &
23% Services
20%
VIC Large Format Retail
30% 35%
----- End of picture text -----

Source: Management, differences may exist due to rounding.

Post the Armstrong Acquisition and the Proposed Transaction, HDN’s pro forma property portfolio will be concentrated in NSW and VIC (67% in total), with NSW representing 37% and VIC 30% of the total property value as at 31 December 2020. The weighting towards QLD will increase, as four of the LFR Portfolio properties (49.7% of the total Proposed Transaction property value) are located in QLD. The pro forma portfolio will be predominately comprised of neighbourhood retail centres (non-specialty and specialty), which will represent 45% of the portfolio, and large format retail centres, which will represent 35% of the portfolio. The weighting of the large format retail sub-sector will increase as a significant proportion of the tenancy mix of the LFR Portfolio is weighted towards large format retail. The neighbourhood weighting will be below the target range (50%), while large format retail will be above target (30%) and health & services at the target range (20%).

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Lease expiry profile

HDN’s lease expiry (by gross income) as at 31 December 2020 and on a pro forma basis incorporating the Armstrong Acquisition and Proposed Transaction (by forecast gross income) as at 30 June 2021 is illustrated in the following figure.

Table 19: HDN lease expiry as at 31 December 2020 and on a pro forma basis as at 30 June 2021

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100% 31-Dec-201 Pro forma as at 30-Jun-212
90% 86% 87%
80%
70%
60%
50%
40%
30%
20%
10% 1% 1% 3% 2% 6% 5% 4% 5%
0%
FY21 FY22 FY23 FY24 FY25+
Source: Management, HDN 1H21 Results Presentation and Investor Presentation.
Notes:
----- End of picture text -----

1. Gross income for signed leases and signed MoUs as at 31 December 2020. 2. Forecast gross income for signed leases and signed MoUs as at 30 June 2021.

As at 31 December 2020, 86% of the leases (by gross income) are expiring after FY25, with no more than 6% of leases expiring in any year before FY25. As at 30 June 2021, following the Armstrong Acquisition and the Proposed Transaction, the pro forma lease expiry profile has remained relatively unchanged, with 87% of the leases (by forecast gross income) expiring after FY25 and no more than 5% of leases expiring in any year before FY25.

Tenant composition

The following provides an overview of the tenant composition (by gross income) of HDN’s portfolio as at 31 December 2020, as well as the impact that the Armstrong Acquisition and Proposed Transaction has on the tenant composition (by forecast gross income) of HDN’s portfolio as at 30 June 2021.

As at 31 December 2020

As at 31 December 2020, the composition of tenants in HDN’s portfolio is relatively concentrated, with the largest five tenants representing 37.3% of the portfolio by gross income and the largest 15 tenants representing 57.2% of the portfolio by gross income.

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Table 20: HDN top tenants (by gross income) as at 31 December 2020

Top tenants by gross income1	31-Dec-20
Woolworths	13.4%
Coles	12.1%
Wesfarmers	5.4%
Super Retail Group	3.3%
IGA/ Fresh & Save	3.1%
Total	37.3%

Source: HDN 1H21 Results Presentation.

Note 1: Gross income for signed leases and signed MoUs as at 31 December 2020.

30 June 2021 pro forma (including Armstrong Acquisition and Proposed Transaction)

Following the Armstrong Acquisition and the Proposed Transaction, the composition of tenants in HDN’s portfolio, on a pro forma basis as at 30 June 2021, will become less concentrated, with the largest five tenants representing 29.7% of the portfolio by forecast gross income and the largest 15 tenants representing 51.1% of the portfolio by forecast gross income.

Table 21: HDN top tenants (by forecast gross income) pro forma as at 30 June 2021

Top tenants by gross income1	30-Jun-21
Coles Woolworths Super Retail Group Spotlight Group Wesfarmers	10.0% 8.2% 3.9% 3.8% 3.8%
Total	29.7%

Source: Management.

Note 1: Forecast gross income for signed leases and signed MoUs as at 30 June 2021.

Financial performance

The financial performance of HDN from 15 October 2020 to 31 December 2020 ( 1H21 ) is summarised in the following table. Whilst the financial statements commence from 15 October 2020, HDN's financial performance for the period ended 31 December 2020 was materially influenced by the transfer of properties from HMC and commencement of property income from 20 November 2020.

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Table 22: Financial performance of HDN

	Period	1H21
	$ million unless otherwise stated	Reviewed
	Property income	6.6
	Interest income	0.2
	Total revenue	6.8
	Property expenses	(1.7)
	Management fees1	(0.8)
	Corporate expenses	(0.2)
	Total expenses	(2.7)
	Operating EBTIDA	4.1
	Acquisition and transaction costs	(5.6)
	Net unrealised loss from fair value adjustments of investment property	(19.6)
	Finance costs	(1.1)
	Netprofit/(loss) attributable to HDN unitholders	(22.2)
	*Reconciliation to FFO*
	Acquisition and transaction costs	5.6
	Straight lining and amortisation of lease incentives	(0.2)
	Net unrealised loss from fair value adjustments of investment property	19.6
	Amortisation of borrowing costs	0.2
	Rentguarantee income	0.1
	FFO	3.1
	*Statistics*
	Weighted average number of units (million) 2	450.7
	Number of units (million) 3	482.9
	FFO per unit (cents) 4	0.65
	Basic earnings per unit (cents) 5	(4.93)

Source: HDN 1H21 Report, HDN 1H21 Results Presentation and KPMG Corporate Finance analysis. Notes:

1. Management fees relate to property and fund management roles provided by the Property Manager and Investment Manager. Management fees are charged in accordance with the management arrangements with HDN.

2. The weighted average number of units is calculated effective from the date of allotment of units to HMC on 20 November 2020 and completion of the listing process on 26 November 2020.

3. The number of units on issue as at 31 December 2020.

4. FFO per unit is calculated as the FFO for 1H21 divided by the number of units.

5. Basic earnings per unit is calculated by dividing the profit/(loss) attributable to HDN unitholders, excluding any costs of servicing equity other than ordinary units, by the weighted average number of ordinary units outstanding during the financial half-year, adjusted for bonus elements in ordinary units issued during the financial half-year.

In relation to the financial performance of HDN, we note:

 property income is inclusive of other property income which includes recoveries from tenants recognised in accordance with AASB 15 ‘Revenue from contracts with customers’

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FFO of $3.1 million was higher than the FFO of $2.5 million forecast in the PDS. This increase was primarily due to increased occupancy rates (trading occupancy by GLA increased from 93.1% per the PDS to 96.7% as at 31 December 2020), strong cash collection (99% unadjusted cash collections since IPO) and the incremental income that was realised from the acquisitions of Marsden Park, QLD and Bunnings Seven Hills, NSW
the net loss of $22.2 million was driven by the $5.6 million of transaction costs that were incurred as a result of the IPO, and the $19.6 million of unrealised fair value losses associated with the investment properties, comprising transaction costs incurred in relation to property acquisitions of $26.3 million net of positive property revaluations as at 31 December 2020 of $6.7 million. The positive property revaluations of $6.7 million includes a $3.2 million gain (pre stamp duty) at Bunnings Seven Hills following the signing of a new 10-year lease
there were no distributions paid, recommended or declared during 1H21, and
under the current tax legislation, HDN is intended to be treated as a ‘flow-through’ entity for Australian income tax purposes under the Attribution Managed Investment Trust ( AMIT ) rules, such that the net income of HDN will be taxable in the hands of unitholders on an attribution basis.

HDN’s most recent FY21 FFO guidance[63] of $20.5 million (4.2 cents per unit) represents a 9% upgrade from the PDS FY21 FFO guidance of $18.85 million (3.9 cents per unit). HDN’s FY21 PDS distribution per unit of 4.2 cents was reaffirmed, whilst the first distribution of 2.4 cents per unit, which is for the four-month period to 31 March 2021, was fully FFO covered in relation to the three months ended 31 March 2021.

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9.5 Financial position

The financial position of HDN as at 31 December 2020 is summarised in the following table.

Table 23: Financial position of HDN

As at 31 December	2020
$ million unless otherwise stated	Reviewed
Cash and cash equivalents	6.4
Trade and other receivables	7.2
Other assets	20.6
Assets held for sale	14.1
Current assets	48.3
Investment property	959.3
Other assets	1.0
Non-current assets	960.3
Total assets	1,008.6
Trade and other payables	18.0
Other liabilities	0.9
Current liabilities	18.9
Interest bearingliabilities	344.9
Non-current liabilities	344.9
Total liabilities	363.8
Net assets	644.8
Total equity	644.8
*Statistics:*
Number of units (million) 1	482.9
NTA per unit ($) 2	1.34
Gearing 3	34.5%

Source: HDN 1H21 Report, HDN 1H21 Results Presentation and KPMG Corporate Finance analysis. Notes:

1. The number of units as at 31 December 2020.

2. NTA per unit is calculated as the NTA as at 31 December 2020 divided by the number of units.

3. Gearing is defined as interest bearing liabilities (excluding unamortised debt establishment costs) less cash and cash equivalents divided by total assets less lease liabilities and cash and cash equivalents.

In relation to the financial position of HDN, we note:

trade and other receivables are inclusive of a $2.9 million receivable from HMC
other current assets include $18.5 million of property deposits, which represents the amount paid to HMC for the Parafield, SA property (as part of the demerger) which had not been transferred as at 31 December 2020
as part of the acquisition of the Vincentia, NSW property, HDN acquired an option to acquire a neighbouring parcel of land for $1 million. The option is recognised as an other non-current asset as at 31 December 2020

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assets held for sale of $14.1 million represents a parcel of the land at the Hawthorn East, VIC property which is contracted to be sold to HMC upon the sub-division of the land
investment properties are the most significant asset on HDN’s balance sheet (95% of total assets) and comprise solely of freehold properties. The investment properties balance increased from $825 million (as at the PDS balance) to $959.3 million (as at 31 December 2020). The increase was primarily driven by $104 million of property acquisitions (Marsden Park, QLD and Bunnings Seven Hills, NSW) and $23.5 million in capex/incentives spend
investment properties comprise of freehold investment properties held at fair value through profit or loss. The fair value of investment properties of HDN is determined by a combination of independent external valuations and Directors’ valuations. Investment properties are independently valued on a rotational basis at least once every 24 months. As at 31 December 2020, the investment properties had a balance of $959.3 million, which was comprised of $550.6 million of investment properties that were transferred to HDN (from HMC) as part of the demerger from HMC, $428.3 million of investment property additions (contracted acquisitions) and a $19.6 million net unrealised loss from fair value adjustments of investment property. The net unrealised loss from fair value adjustments of investment property is discussed above in Section 9.4
trade and other payables include the management fees payable to the Investment Manager and Property Manager, as well as the expenses that are reimbursed to the Responsible Entity
NTA per unit as at 31 December 2020 was $1.34, which is a slight increase from the PDS balance (as at 26 November 2020) of $1.33, and
gearing as at 31 December 2020 was 34.5%, which is within the target gearing range of 30% to 40%. The gearing has increased from the PDS balance (as at 26 November 2020) of 26.2% as a result of the Marsden Park, QLD and Bunnings Seven Hills, NSW acquisitions being debt funded.

Interest bearing liabilities

The following table summarises HDN’s interest bearing liabilities as at 31 December 2020.

Table 24: HDN interest bearing liabilities as at 31 December 2020

	Currency	Total	Amount	Available	Maturity
$ million	denomination	facility	drawn	facility	date
Bank Loan (senior secured syndicated facility)	A$	500.0	352.0	148.0	26 Nov 23
Total		500.0	352.0	148.0
Less: capitalised borrowing costs			(7.1)
Interest bearing liabilities per financial position			344.9

Source: HDN 1H21 Report and KPMG Corporate Finance analysis.

As at 31 December 2020, HDN had gearing[64] of 34.5% and a weighted average cost of debt of 2.2% on a drawn basis (excluding establishment fees). In relation to the table above we note the following:

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HDN’s debt is unrated
HDN entered into a $400 million senior secured syndicated bank loan ( Bank Loan ) at the time of the PDS. The Bank Loan was upscaled to a $500 million facility in December 2020 during the syndication process and is scheduled to expire on the 26 November 2023
as at 31 December 2020, HDN had drawn $352 million of the Bank Loan and had recorded $7.1 million of capitalised borrowing costs
the interest on the Bank Loan comprises a base rate plus a variable margin, determined by the prevailing loan to valuation ratio ( LVR )
the Bank Loan is secured by first mortgages over HDN’s freehold properties (including any classified as held for sale), and
as at 31 December 2020, none of the debt balance is hedged.

The financial covenants relating to HDN’s debt facility are set out in the following table.

Table 25: Financial covenants

	Covenant
Total liabilities/total tangible assets (TL/TTA)	Less than 60%
Interest coverage ratio (ICR)	Greater than 2.0 times
LVR	Less than 50%

Source: HDN 1H21 Report, HDN 1H21 Results Presentation, and KPMG Corporate Finance analysis.

Management advised that as at 31 December 2020, the TL/TTA and LVR covenants were met and the ICR covenant wasn’t tested.

9.6 Pro forma financial position

The pro forma financial position of HDN (including the impact of the Armstrong Acquisition, the Proposed Transaction and the Draft June 21 Valuations) is summarised in the following table.

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Table 26: Pro forma financial position

			Pro forma
		Armstrong Acquisition	post Armstrong Acquisition				Pro forma
		&	&		Pro forma post		including Draft
	2020	Entitlement	Entitlement	Proposed	Proposed	Draft June 21	June 21
$ million unless otherwise stated	Reviewed1	Offer 2	Offer	Transaction 3	Transaction4	Valuations 5	Valuations6
Cash and cash equivalents	6.4	265.0	271.4	(265.0)	6.4	-	6.4
Trade and other receivables	7.2	-	7.2	-	7.2	-	7.2
Other assets	20.6	-	20.6	-	20.6	-	20.6
Assets held for sale	14.1	-	14.1	-	14.1	-	14.1
Current assets	48.3	265.0	313.3	(265.0)	48.3	-	48.3
Investment property	959.3	55.6	1,014.9	266.4	1,281.3	17.3	1,298.6
Other assets	1.0	-	1.0	-	1.0	-	1.0
Non-current assets	960.3	55.6	1,015.9	266.4	1,282.3	17.3	1,299.6
Total assets	1,008.6	320.6	1,329.2	1.4	1,330.6	17.3	1,347.9
Trade and other payables	18.0	-	18.0	-	18.0	-	18.0
Other liabilities	0.9	-	0.9	-	0.9	-	0.9
Current liabilities	18.9	-	18.9	-	18.9	-	18.9
Interest bearingliabilities	344.9	64.5	409.4	20.0	429.4	-	429.4
Non-current liabilities	344.9	64.5	409.4	20.0	429.4	-	429.4
Total liabilities	363.8	64.5	428.3	20.0	448.3	-	448.3
Net assets	644.8	256.1	900.9	(18.6)	882.3	17.3	899.6
Total equity	644.8	256.1	900.9	(18.6)	882.3	17.3	899.6
*Statistics:*
Number of units (million)	482.9	204.6	687.5	687.5	687.5	687.5	687.5
NTA per units ($)	1.34	-	1.31	-	1.28	-	1.31
Gearing 7	34.5%	-	13.7%	-	32.5%	-	32.1%

Source: Management, Investor Presentation and KPMG Corporate Finance analysis. Notes:

1. Refer to Section 9.5 of this report.

2. The impact of the Armstrong Acquisition and Entitlement Offer. The investment property balance is based on the Armstrong Creek purchase price and is exclusive of acquisition fees and stamp duty. The increase in the interest bearing liabilities balance (non-current) includes the purchase price of Armstrong Creek (inclusive of acquisition fees and stamp duty) and the transaction costs incurred as part of the Entitlement Offer. The cash and cash equivalents balance is based on the $265 million that is to be raised as part of the Entitlement Offer.

3. The impact of the Proposed Transaction. The investment property balance is based on the LFR Portfolio purchase price and is exclusive of acquisition fees and stamp duty. The increase in the interest bearing liabilities balance (non-current) reflects the balance of the assumed debt drawdown. The cash expected to be raised through the Entitlement Offer will be used to fund the Proposed Transaction.

4. Includes the impact of the Armstrong Acquisition, the Entitlement Offer and the Proposed Transaction.

5. Refer to the pro forma financial position notes for further information on the Draft June 21 Valuations for the LFR Portfolio.

6. Includes the impact of the Armstrong Acquisition, the Entitlement Offer, the Proposed Transaction and Draft June 21 Valuations. Parafield, SA continues to be recognised as a current other asset (noting it will be reclassified as an investment property in the 30 June 2021 financial statements).

7. Gearing is defined as interest bearing liabilities (excluding unamortised debt establishment costs) less cash and cash equivalents divided by total assets less lease liabilities and cash and cash equivalents.

In relation to the pro forma financial position of HDN, we note:

 as part of their due diligence in relation to the Proposed Transaction, HDN commissioned the Draft June 21 Valuations from Savills to assess the fair values of each of the properties making up the LFR

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Portfolio, as at 30 June 2021. Given the Proposed Transaction is scheduled to complete soon after 30 June 2021, we have included the Draft June 21 Valuations in the pro forma balance sheet shown above

Table 27: LFR Portfolio with Draft June 21 Valuations

Property
		Proposed fair value as
$ million unless otherwise stated	31-Dec-20 Valuation	at 30 June 20211		Uplift
*Proposed Transaction*
Box Hill, VIC	49.5		57.5	8.0
Bundall, QLD	31.8		35.5	3.7
Mackay, QLD	26.3		27.2	0.9
Marsden Park, NSW	52.0		57.3	5.3
South Morang, VIC	32.4		35.7	3.3
Toowoomba, QLD	29.1		32.0	2.9
Upper Coomera,QLD	45.3		38.5	(6.8)
Total	266.4		283.7	17.3

Source: Management, Investor Presentation and KPMG Corporate Finance analysis. Note 1: Proposed fair value is based on the Draft June 21 Valuations.

HDN’s pro forma NTA per unit is $1.31 post the Armstrong Acquisition and Entitlement Offer, $1.28 post the Proposed Transaction and $1.31 when incorporating the proposed revaluation uplift based on the Draft June 21 Valuations
the 2.3% reduction in pro forma NTA per unit attributed to the Proposed Transaction (excluding any revaluation arising from the Draft June 21 Valuations) is predominately driven by the $18.6 million of avoidable transaction[65] and stamp duty costs that will be incurred with respect to the Proposed Transaction. It is noted that the pro forma NTA per unit, inclusive of the Draft June 21 Valuations uplift, at $1.31 per unit, is broadly equivalent to the pro forma NTA per unit post the Armstrong Acquisition and Entitlement Offer
the decline in gearing from 34.5% as at 31 December 2020 to a pro forma gearing of 32.1% post the Proposed Transaction and the Draft June 21 Valuations uplift arises due to the fact that a substantial component of the funding for the Proposed Transaction and Armstrong Acquisition is the equity raised through the Entitlement Offer ($265 million out of total of $350 million), and
as discussed previously, if the Selected Buy-Back is approved, eligible unitholders (other than HMC) who receive Bonus Units through the Entitlement Offer will effectively have a 5% increase in the number of units they receive under the Entitlement Offer. For those eligible unitholders, this increase in units will partially offset any reduction in NTA per unit.

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9.7 Outlook

In connection with the announcement of the Proposed Transaction on 19 April 2021, HDN advised that the acquisitions and the Entitlement Offer would be accretive to FY22 FFO per unit, and provided FY22 FFO guidance of at least 8.3 cents per unit ($57.0 million), representing an increase of 23.9% versus FY21 PDS FFO of 6.7 cents per unit[66] .

We have set out in the table below the FY21 FFO guidance, the FY21 FFO guidance annualised and the FY22 FFO guidance excluding the impact of the Proposed Transaction and the Armstrong Acquisition. This shows an approximate 1.0% accretion to pre-LFR Portfolio and Armstrong Acquisition FY22 FFO per unit guidance.

Table 28: FFO per unit summary

			FY22 excl. LFR	FY22 incl. LFR
	FY211	FY21 annualised2	Portfolio & Armstrong	Portfolio & Armstrong
$ million			Acquisition	Acquisition3
FFO	20.5	35.1	39.7	57.0
Units on issue(million)	482.9	482.9	482.9	687.5
FFOper unit(cents)	4.2	7.3	8.2	8.3

Source: Management, Investor Presentation and KPMG Corporate Finance analysis. Notes:

1. FFO includes the FY21 PDS forecast, Marsden Park, QLD and Bunnings Seven Hills, NSW as well as the 1H21 outperformance.

2. FFO is annualised based on the seven months of trading to 30 June 2021.

3. FFO includes the LFR Portfolio, Armstrong Creek and interest expense on the debt funding. Units on issue include the 204.6 million units that are to be issued as part of the Entitlement Offer.

The increase in the FY22 FFO guidance, including the LFR Portfolio and Armstrong Acquisition, is $17.3 million. Over 80% of the increase FY22 FFO guidance is assumed to be derived from the LFR Portfolio.

9.8 Share capital and ownership

9.8.1 Major unitholders

As at listing (26 November 2020), HDN had 482,913,263 units on issue. HDN’s ownership was concentrated, with the top 20 registered unitholders accounting for 66.2% of the total units on issue. The largest unitholder as at 26 November 2020 was HMC, which accounts for 26.6% of total HDN units on issue.

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Table 29: Top 20 HDN unitholders as at 26 November 2020

Top 20 HDN unitholders	number of units	% ownership
HMC	128,613,677	26.6%
HSBC Custody Nominees (Australia) Limited	57,277,298	11.9%
Aurrum Holdings Investment Company Pty Ltd	25,005,679	5.2%
BNP Paribas Nominees Pty Ltd	16,886,183	3.5%
National Nominees Limited	15,588,957	3.2%
UBS Nominees Pty Ltd	14,096,867	2.9%
Citicorp Nominees Pty Limited	13,349,793	2.8%
HSBC Custody Nominees (Australia) Limited - A/C 2	6,542,620	1.4%
J P Morgan Nominees Australia Pty Limited	5,511,051	1.1%
CW Property Nominees Pty Ltd	5,001,136	1.0%
Spotlight HIC Nominee Pty Ltd	5,001,136	1.0%
Primewest (HICT) Pty Ltd	3,750,852	0.8%
Home Consortium Investments Pty Ltd	3,472,222	0.7%
Goat Properties Pty Ltd	3,358,209	0.7%
BNP Paribas Noms Pty Ltd	3,285,849	0.7%
Jarden Scrip Limited	3,176,398	0.7%
BNP Paribas Nominees Pty Ltd/HUB24 Custodial Serv Ltd	2,706,030	0.6%
Bell Potter Nominees Ltd	2,315,650	0.5%
Neweconomy Com Au Nominees Pty Limited	2,300,726	0.5%
BNP Paribas Noms(NZ)	2,293,233	0.5%
Total	319,533,566	66.2%

Source: Management.

Subsequent to listing, the following substantial unitholder notices have been lodged:

Spotlight Group Holdings Pty Ltd and the relevant persons[67] ceased to be a substantial unitholder on the 26 November 2020, as all the units in HDN held by Home Investment Consortium Company Pty Ltd ( HICC ) and Home Investment Consortium Company 2 Pty Ltd ( HICC2 ) were distributed, by way of an in specie distribution, to unitholders of the Home Investment Consortium Trust ( HICT ), and
CW Property Nominees Pty Ltd ceased to be a substantial unitholder on the 26 November 2020, as all the units in HDN held by HICC and HICC2 were distributed, by way of an in specie distribution, to unitholders of HICT.

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9.9 Unit price performance

9.9.1 HDN recent trading in units

The trading price and volume of units from listing on the ASX on 23 November 2020 to 16 April 2021 (last trading day prior to the announcement of the Proposed Transaction) is illustrated in the following figure.

Figure 8: Trading price and volume of HDN units

==> picture [445 x 236] intentionally omitted <==

----- Start of picture text -----

$1.40 1 3 7.0
$1.35 6.0
4
$1.30 2 5.0
$1.25
4.0
$1.20
3.0
$1.15
2.0
$1.10
$1.05 1.0
$1.00 0.0
Daily Trading Volume Unit price
Unit Price
Trading volume (m)
----- End of picture text -----

Source: HDN 1H21 Results Presentation, HDN March 2021 Distribution Declaration, HDN Investor Presentation - Marsden Park Shopping Centre Acquisition, HDN Investor Presentation - Bunnings Seven Hills Acquisition, Capital IQ and KPMG Corporate Finance analysis.

The following is noted in relation to the figure:

On 23 November 2020, HDN listed on the ASX by the issue and transfer of 225.7 million units at $1.33, with proceeds from the offer totalling $300 million. HMC also announced they had entered into a binding contract to acquire Marsden Park Shopping Centre for $48 million, representing a 6.75% capitalisation rate. The acquisition was fully debt funded and expected to be immediately 4.5% accretive to the HDN’s FY21 FFO. Post transaction gearing was also expected to increase 4.6% to 30.8%. From the 23 November 2020 to early December, the unit price trended downwards to close at a low of $1.25 on 10 December 2020
On 11 December 2020, HDN entered into a binding agreement to acquire Bunnings Seven Hills, NSW for $56 million, representing a passing yield of 5.1%. The acquisition was proposed to be fully debt funded and expected to be immediately accretive to FY21 FFO per unit. Post transaction gearing was expected to increase to 34.9%, which remained within HDN’s target gearing range of 30-40%

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On 17 February 2021, HDN released its 1H21 financial results, also disclosing upgraded FY21 FFO guidance of $20.5 million (or 4.2 cents per unit), an increase of 9% from the PDS FY21 FFO. It was also announced that HDN was on track to deliver on the strategy detailed in the PDS, which included targeting consistent and growing distributions, maintaining high quality and defensive exposures and pursuing value-accretive acquisition opportunities whilst maintaining an appropriate capital structure. HDN disclosed that the portfolios tenancy mix was comprised of more than 76% of national tenants and that 94% of the portfolio’s assets were metro-located. The unit price increased by 1.5% to close at $1.36 on the 17 February 2021, before falling in line with the market to close at $1.27 on the 26 February 2021, and
On 24 March 2021, HDN announced a distribution of 2.425 cents per unit (100% tax deferred) for the period to 31 March 2021. The unit price traded relatively stable until the end of the month, closing at $1.27 on 31 March 2021.

9.9.2 Relative unit price performance

HDN is a member of the S&P/ASX All Ordinaries Index ( All Ordinaries Index ). While, HDN is not a member of the S&P/ASX 200 A-REIT Index ( A-REIT Index ), a comparison of HDN’s unit price performance relative to the A-REIT Index has been included, as the index is considered to be a performance benchmark for Australian REIT’s. The performance of HDN units since its IPO on 23 November 2020 to 16 April 2021 (last trading day prior to the announcement of the Proposed Transaction) relative to the All Ordinaries Index and the A-REIT Index, (rebased to 100) is illustrated below.

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Figure 9: Relative unit price performance

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----- Start of picture text -----

115
110
105
100
95
90
85
80
HDN S&P/ASX 200 A-REIT (Sector) S&P/ASX All Ordinaries Index
Unit Price Performance (rebased to 100)
----- End of picture text -----

Source: Capital IQ and KPMG Corporate Finance analysis.

We note the following in relation to the relative performance of the HDN unit price:

the HDN unit price underperformed the All Ordinaries Index and the A-REIT Index from listing on the ASX in November 2020 until February 2021
in February 2021, the HDN unit price outperformed the A-REIT Index, whilst continuing to underperform the All Ordinaries Index
in March 2021, the HDN unit price continued to track below the All Ordinaries Index whilst broadly tracking the A-REIT Index, and
during April 2021, the HDN unit price continued to track below the All Ordinaries Index and has under-performed against the A-REIT Index.

We make the following observations in relation to HDN’s relative unit price performance:

The constituents of the A-REIT Index hold assets across a wide range of sectors and accordingly it is not unexpected that there is limited correlation with HDN which holds a more specialist class of assets
HDN is not a member of A-REIT Index and as a result is less likely to attract institutional investment, which may have adversely impacted its relative unit price performance
HMC’s 26.6% holding in HDN, will have reduced HDN’s liquidity, which may have adversely impacted its relative unit price performance, and
Given HDN only listed in November 2020, it has a limited track record of performance and investors are likely still assessing its position in the market.

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Appendix 1 – KPMG Corporate Finance Disclosures

Qualifications

Our report has been prepared in accordance with professional standard APES 225 "Valuation Services" issued by the Accounting Professional & Ethical Standards Board ( APESB ).

The individuals responsible for preparing this report on behalf of KPMG Corporate Finance are Bill Allen and Sean Collins. Each is an authorised representative of KPMG Corporate Finance and a partner of KPMG and has a significant number of years’ experience in the provision of corporate financial advice, including specific advice on valuations, mergers and acquisitions, as well as the preparation of expert reports. Bill is an Associate of Chartered Accountants Australia and New Zealand and holds a Bachelor of Commerce degree and a Graduate Diploma in Applied Finance. Sean is a Fellow of Chartered Accountants Australia and New Zealand, a Fellow of the Chartered Institute of Securities and Investments in the United Kingdom and holds a Bachelor of Commerce from the University of Queensland.

Disclaimers

It is not intended that this report should be used or relied upon for any purpose other than KPMG Corporate Finance’s opinion as to whether the Proposed Transaction is fair and reasonable to Nonassociated Unitholders. KPMG Corporate Finance expressly disclaims any liability to any Non-associated Unitholders who relies or purports to rely on the report for any other purpose and to any other party who relies or purports to rely on the report for any purpose whatsoever.

Other than this report, neither KPMG Corporate Finance nor the KPMG Partnership has been involved in the preparation of the Notice of Extraordinary General Meeting and Explanatory Memorandum or any other document prepared in respect of the Proposed Transaction. Accordingly, we take no responsibility for the content of the Notice of Extraordinary General Meeting and Explanatory Memorandum as a whole or other documents prepared in respect of the Proposed Transaction.

Independence

KPMG Corporate Finance and the individuals responsible for preparing this report have acted independently.

In addition to the disclosures in our Financial Services Guide, it is relevant to a consideration of our independence that, during the course of this engagement, KPMG Corporate Finance provided draft copies of this report to management of HDN for comment as to factual accuracy, as opposed to opinions which are the responsibility of KPMG Corporate Finance alone. Changes made to this report as a result of those reviews have not altered the opinions of KPMG Corporate Finance as stated in this report.

Consent

KPMG Corporate Finance consents to the inclusion of this report in the form and context in which it is included with the Notice of Extraordinary General Meeting and Explanatory Memorandum to be issued to the Non-associated Unitholders. Neither the whole nor the any part of this report nor any reference thereto may be included in any other document without the prior written consent of KPMG Corporate Finance as to the form and context in which it appears.

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Appendix 2 – Sources of information

In preparing this report we have been provided with and considered the following sources of information:

Publicly available information

the Notice of Extraordinary General Meeting and Explanatory Memorandum (including earlier drafts)
the announcement and presentation material regarding the Proposed Transaction released to the ASX on 19 April 2021
half-year report of HDN for the 6 months to 31 December 2020
HDN Product Disclosure Statement
press releases, public announcements, media and analyst presentations material and other public filings by HDN, including information available on the company’s website
brokers’ reports and recent press articles on HDN
Nearmap
Corelogic
title and lease documentation
Government and local authority records
financial information from S&P Capital IQ, Bloomberg, ThomsonONE and Connect4, and
various industry sources.

Non-public information

board papers, presentations, working papers and other confidential documents of HDN.

In addition, we have held discussions with, and obtained information from, the senior management of HDN. We have also held discussions with the Independent Directors.

A limited physical site inspection of each the properties making up the LFR Portfolio was undertaken by KPMG Corporate Finance representatives between 3 April 2021 and 9 April 2021.

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Appendix 3 – Sales evidence

In undertaking our valuation of the Properties, we have had regard to a number of transactions. The following transactions are considered the most relevant:

Table 30: Sales evidence summary

Sale	Property	State	Sale Date	Sale	GLAR	WALE	Initial	Capital
No.				Price			Yield	Value
								Rate
				($ m)	(sqm)	(years)	(%)	($ psm)
1	Robina Home+Life, 550 Christine Avenue, Robina	QLD	Mar-21	66.0	14,782	2.9	5.98%	4,465
2	Watergardens, 430 Melton Highway, Taylors Lake	VIC	Mar-21	97.0	25,935	4.0	4.63%	3,740
3	Bunnings Robina, 521 Christine Avenue/57 Scottsdale Drive, Robina	QLD	Dec-20	28.1	12,803	7.0	5.49%	2,191
4	Bunnings Seven Hills, 42 Abbott Road, Seven Hills	NSW	Dec-20	56.0	13,440	0.5	5.10%	4,167
5	Gregory Hills Home Centre, 2 Steer Road, Gregory Hills	NSW	Sep-20	32.0	8,364	6.2	6.25%	3,826
6	92-94 Redland Bay Road, Capalaba	QLD	Sep-20	8.4	1,782	7.0	5.12%	4,728
7	300 Parramatta Road, Auburn	NSW	Dec-19	46.0	9,607	5.4	3.95%	4,788
8	84 Redland Bay Road, Capalaba	QLD	Nov-19	8.8	2,335	6.7	6.39%	3,970
9	Casey Lifestyle Centre, 430-440 Princes Hwy Narre Warren	VIC	Oct-19	57.0	17,953	3.6	7.14%	3,175
10	Geelong Gate Homemaker Centre, 470-510 Princes Hwy, Corio	VIC	Jul-19	44.3	19,554	5.4	7.19%	2,263
11	North Lakes Lifestyle Centre	QLD	Mar-19	21.5	7,971	2.9	8.21%	2,697

Source: KPMG Corporate Finance analysis.

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Appendix 4 – Box Hill Property Profile and Valuation

Profile

Location

The Box Hill property comprises a large format retail centre situated at 249 Middleborough Road, in the suburb of Box Hill South, VIC, with frontages to Middleborough Road and Ailsa Street, approximately 15.5 radial kilometres east of the Melbourne GPO.

The position of the property is shown in the aerial photograph below:

==> picture [426 x 237] intentionally omitted <==

Source: Nearmap, KPMG Corporate Finance analysis.

Legal description

The Box Hill property comprises three allotments legally described as Lots 1, 2 and 3 on Plan of Subdivision 711599R.

The Registered Owner is HomeCo (Box Hill) Pty Ltd.

Site particulars

The Box Hill property comprises a near level, irregular shaped parcel of land having a total site area of 39,602 sqm, zoned “Industrial 1” under the Whitehorse Planning Scheme.

Improvements

The Box Hill property is improved with three buildings forming a large format retail centre configured as 16 tenancy areas with a GLA of 13,873 sqm and car parking for 341 cars.

The layout of the centre is shown in the Plan below:

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Source: Management.

The photographs of the property set out below, were taken during our on-site physical inspection on 9 April 2021.

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Occupancy details

Management have provided us with occupancy details summarised below:

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Table 31: Box Hill occupancy details

Tenancy No Tenant	GLA1 (sqm) Lease Term (years) Options (years) Year of Lease Commencement
T01 Decathlon T2&11 Flip Out T03 Goodlife T004 BCF T05 Chemist Warehouse T06 Chipmunks T07 Medical Centre T08 Kitchen Warehouse Pty Ltd T09 Guzman Y Gomez Leasing Pty Ltd T010 Our Bakery T012 Nutrition Warehouse SCR Southern Cross recycling SMG Shopper Media Group P01 Petbarn Pty Ltd P02 Repco P03 Amwayof Australia	3,817 20 - 2018 1,469 10 - 2020 1,985 10 2 x 5 2018 1,272 7 3 x 7 2019 995 5 3 x 5 2018 600 10 5 2021 297 10 - 2021 849 10 5 2018 160 10 10 2018 146 10 - 2021 235 5 5 2019 0 3 - 2019 0 5 5 2019 948 10 2 x 5 2015 598 10 - 2015 502 5 5 2016
	13,873

Source: KPMG Corporate Finance analysis. Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

We have calculated the WALE by income based on the above occupancy details to be 8.6 years.

Valuation

We have assessed a market value range for the Box Hill property as at the Valuation Date through an Income Approach cross-checked through a Market Approach.

Income Approach

Our valuation inputs to the capitalisation method are summarised below.

Income

We have reviewed:

the tenancy schedule and lease documentation to determine the current gross passing income; and
the available market rental evidence in comparison to the property to determine the gross market income on a fully leased basis.

We consider the current gross passing rentals payable under the leases to be predominantly in line with market levels and have applied a gross market rental to the vacant areas, to determine a gross income on a fully leased basis.

We have then deducted estimated outgoings to derive a net income on a fully leased basis.

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Capitalisation Rate

In deriving an appropriate capitalisation rate range to apply in our calculations we have had regard to the available market evidence, included at Appendix 3, and summarised at Section 8.6.

We consider sales 1, 2, 3, 4, 5 and 9 to provide the best guide for appropriate comparison and capitalisation rate selection. These sales provide a range in Initial Yields of between 4.63% and 7.14%. We consider that an appropriate capitalisation rate for the Box Hill property to be within the range due to the tenancy mix, WALE, adopted market rents and overall quantum.

We have applied the following capitalisation rate range to the assessed net income on a fully leased basis.

Table 32: Box Hill adopted capitalisation rate range

Property	Adopted Capitalisation Rate Range	Adopted Capitalisation Rate Range
	(%)	(%)
Box Hill	6.25%	6.00%

Source: KPMG Corporate Finance analysis.

Adjustments

We have made below the line adjustments to our assessed capital value for the following allowances:

re-letting allowances for imminent expiries (where lease expiry is within 24 months)
reversions where passing rental differs to our adopted market rental, and
budgeted capital expenditure.

Management have advised that there are no outstanding incentives as at the Valuation Date.

We have calculated the value range through the capitalisation method to be:

Table 33: Box Hill value range through capitalisation method

Property		Market Value Range
	($ m)		($ m)
Box Hill	55.7		58.1

Source: KPMG Corporate Finance analysis.

Market Approach

Our value range derived through the Income Approach has been cross-checked through a market-based comparative transactions method having regard to capital values analysed on a rate per square metre of GLA as calculated below:

Table 34: Box Hill market-based cross-check

Property	GLA1	Value	Range	Resultant Capital Value Rate Range	Resultant Capital Value Rate Range
	(sqm)	($ m)	($ m)	($ psm)	($ psm)
Box Hill	13,873	55.7	58.1	4,015	4,188

Source: KPMG Corporate Finance analysis.

Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

The resultant rates shown above are comparable to those exhibited by the sales evidence, included at Appendix 3, and summarised at Section 8.9. The resultant rate range reflected in this cross-check

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approach is comparable to sales 1, 2, 3, 4, 5 and 9 which show a rate range of $2,191 to $4,465 psm. The resultant rate range correlates with the aforementioned range shown by the market evidence.

Valuation Conclusion

We are of the opinion that the market value for the Box Hill property as at the Valuation Date is in the range shown in the table below:

Table 35: Box Hill market value range

Property ($ m) ($ m) Market Value Range	Property ($ m) ($ m) Market Value Range
Box Hill 55.7 58.1
Source: KPMG Corporate Finance analysis.

Brett McAuliffe FAPI, Certified Practising Valuer No. 65622	Adam Brackenridge-McMonigal AAPI, Certified Practising Valuer No. 69735

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Appendix 5 – Bundall Property Profile and Valuation

Profile

Location

The Bundall property comprises a large format retail centre situated at 100 Bundall Road, in the suburb of Bundall (Gold Coast), QLD, with frontages to Bundall Road and Upton Street, approximately two radial kilometres west of Surfers Paradise.

The position of the property is shown in the aerial photograph below:

==> picture [426 x 234] intentionally omitted <==

Source: Nearmap, KPMG Corporate Finance analysis.

Legal description

The Bundall property comprises one allotment legally described as Lot 1 on Survey Plan 272687.

The Registered Owner is Home Consortium Property Pty Ltd.

Site particulars

The Bundall property comprises a near level, irregular shaped parcel of land having a total site area of 16,450 sqm, zoned “Mixed Use, Fringe Business Precinct” under the Gold Coast City Plan.

Improvements

The Bundall property is improved with a part two level building forming a large format retail centre configured as 11 tenancy areas above parking, with a GLA of 10,458 sqm and car parking for 325 cars.

The layout of the centre is shown in the Plan below:

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Source: Management.

The photographs of the property set out below, were taken during our on-site physical inspection on 6 April 2021.

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Occupancy details

Management have provided us with occupancy details summarised below:

Table 36: Bundall occupancy details

Tenancy No	Tenant	GLA1	Lease Term	Options	Year of Lease
		(sqm)	(years)	(years)	Commencement
T01	Nick Scali	2,491	7	-	2018
T02A	James Lane	1,085	7	7	2018
T02B	Carpet Call	388	5	5	2018
T03	Eureka Street Furniture	1,601	1	-	2020
T04	De Rucci	733	5	2 x 5	2018
T05	Kitchen Warehouse	844	10	5	2018
T06	Goodlife	3,101	10	2 x 5	2018
SCR	Southern Cross recycling	0	3	-	2019
SMG	Shopper Media Group	0	5	5	2019
CP01	Wishwash Carwash	135	5	5	2020
O01	AIO BuildingServices PtyLtd	80	3	3	2020
		10,458

Source: KPMG Corporate Finance analysis.

Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

We have calculated the WALE by income based on the above occupancy details to be 5.3 years.

Valuation

We have assessed a market value range for the Bundall property as at the Valuation Date through an Income Approach cross-checked through a Market Approach.

Income Approach

Our valuation inputs to the capitalisation method are summarised below.

Income

We have reviewed:

the tenancy schedule and lease documentation to determine the current gross passing income; and
the available market rental evidence in comparison to the property to determine the gross market income on a fully leased basis.

We have then deducted estimated outgoings to derive a net income on a fully leased basis.

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Capitalisation Rate

In deriving an appropriate capitalisation rate range to apply in our calculations we have had regard to the available market evidence, included at Appendix 3, and summarised at Section 8.6.

We consider sales 1, 2, 3, 6 and 8 to provide the best guide for appropriate comparison and capitalisation rate selection. These sales provide a range in Initial Yields of between 4.63% and 6.39%. We consider that an appropriate capitalisation rate for the Bundall property to be higher than the range due to the tenancy mix, WALE, adopted market rents and overall quantum.

We have applied the following capitalisation rate range to the assessed net income on a fully leased basis.

Table 37: Bundall adopted capitalisation rate range

Property	Adopted	Capitalisation Rate Range
	(%)	(%)
Bundall	6.75%	6.50%

Source: KPMG Corporate Finance analysis.

Adjustments

We have made below the line adjustments to our assessed capital value for the following allowances:

re-letting allowances for imminent expiries (where lease expiry is within 24 months), and
budgeted capital expenditure.

Management have advised that there are no outstanding incentives as at the Valuation Date.

We have calculated the value range through the capitalisation method to be:

Table 38: Bundall value range through capitalisation method

Property		Market Value Range
	($ m)		($ m)
Bundall	34.4		35.8

Source: KPMG Corporate Finance analysis.

Market Approach

Table 39: Bundall market-based cross-check

Property	GLA1	Value	Range	Resultant Capital	Value Rate Range
	(sqm)	($ m)	($ m)	($ psm)	($ psm)
Bundall	10,458	34.4	35.8	3,289	3,423

Source: KPMG Corporate Finance analysis.

Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

The resultant rates shown above are comparable to those exhibited by the sales evidence, included at Appendix 3, and summarised at Section 8.9. The resultant rate range reflected in this cross-check

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approach is comparable to sales 1, 2, 3, 6 and 8 which show a rate range of $2,191 to $4,728 psm. The resultant rate range correlates with the aforementioned range shown by the market evidence.

Valuation Conclusion

We are of the opinion that the market value for the Bundall property as at the Valuation Date is in the range shown in the table below:

Table 40: Bundall market value range

Property ($ m) ($ m) Market Value Range	Property ($ m) ($ m) Market Value Range
Bundall 34.4 35.8
Source: KPMG Corporate Finance analysis.

Brett McAuliffe FAPI, Certified Practising Valuer No. 65622 Registered Valuer No. 2129 (Qld)	Andrew Willsford AAPI, Certified Practising Valuer No. 65706 Registered Valuer No. 2727 (Qld)

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Appendix 6 – Mackay Property Profile and Valuation

Profile

Location

The Mackay property comprises a large format retail centre situated at 86 Holts Road, in the suburb of Richmond (Mackay), QLD, with frontages to Holts Road and Mackay Bucasia Road, approximately five radial kilometres north-west of the Mackay central business district.

The position of the property is shown in the aerial photograph below:

==> picture [426 x 235] intentionally omitted <==

Source: Nearmap, KPMG Corporate Finance analysis.

Legal description

The Mackay property comprises six allotments legally described as Lots 1 and 4 on Survey Plan 118647, Lot 2 on Registered Plan 897382, Lot 3 on Survey Plan 111688, Lot 1 on Survey Plan 141690 and Lot 2 on Survey Plan 138968.

The Registered Owner is Home Consortium Property Pty Ltd.

Site particulars

The Mackay property comprises a near level, irregular shaped parcel of land having a total site area of 108,730 sqm, zoned “Specialised Centre” under the Mackay City Planning Scheme.

The Mackay property is not fully developed with additional rear land, extending to an estimated area of approximately 64,486 sqm, suitable for future redevelopment.

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Improvements

The Mackay property is improved with one building forming a large format retail centre configured as 11 tenancy areas with a GLA of 11,929 sqm and car parking for 378 cars.

The layout of the centre is shown in the Plan below:

==> picture [426 x 235] intentionally omitted <==

Source: Management.

The photographs of the property set out below, were taken during our on-site physical inspection on 9 April 2021.

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Occupancy details

Management have provided us with occupancy details summarised below:

Table 41: Mackay occupancy details

Tenancy No	Tenant	GLA1 (sqm)	Lease Term	Options	Year of Lease
			(years)	(years)	Commencement
T01	Nick Scali	2,129	7	2 x 5	2018
T02/T02A	Spotlight	2,584	10	3 x 10	2018
T03	Anaconda	2,025	10	3 x 10	2018
T04	Fantastic Furniture	2,502	5	3 x 5	2018
T05	Toy World	861	10	-	2020
T06	Thrifties	762	5	5	2020
T07	Petstock	500	5	3 x 5	2018
T08	Cyrus Rugs	366	5	5	2019
U1	Vacant	63
U2	Vacant	54
K01	K & Co Cafe	83	3	3	2019
		11,929

Source: KPMG Corporate Finance analysis.

Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

We have calculated the WALE by income based on the above occupancy details to be 4.9 years.

Valuation

We have assessed a market value range for the Mackay property as at the Valuation Date through an Income Approach cross-checked through a Market Approach.

Income Approach

Our valuation inputs to the capitalisation method are summarised below.

Income

We have reviewed:

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the tenancy schedule and lease documentation to determine the current gross passing income; and
the available market rental evidence in comparison to the property to determine the gross market income on a fully leased basis.

We have then deducted estimated outgoings to derive a net income on a fully leased basis.

Capitalisation Rate

In deriving an appropriate capitalisation rate range to apply in our calculations we have had regard to the available market evidence, included at Appendix 3, and summarised at Section 8.6.

We consider sales 1, 2, 3, 6, 8 and 11 to provide the best guide for appropriate comparison and capitalisation rate selection. These sales provide a range in Initial Yields of between 4.63% and 8.21%. We consider that an appropriate capitalisation rate for the Mackay property to be at the upper end of the range due to the tenancy mix, WALE, adopted market rents and overall quantum.

We have applied the following capitalisation rate range to the assessed net income on a fully leased basis.

Table 42: Mackay adopted capitalisation rate range

Property	Adopted	Capitalisation Rate Range
	(%)	(%)
Mackay	7.50%	7.25%

Source: KPMG Corporate Finance analysis.

Adjustments

We have made below the line adjustments to our assessed capital value for the following allowances:

letting up allowances for current vacancies
re-letting allowances for imminent expiries (where lease expiry is within 24 months)
outstanding incentives
budgeted capital expenditure, and
balance land.

We have calculated the value range through the capitalisation method to be:

Table 43: Mackay value range through capitalisation method

Property		Market Value Range
	($ m)		($ m)
Mackay	26.8		27.6

Source: KPMG Corporate Finance analysis.

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Market Approach

Table 44: Mackay market-based cross-check

Property	GLA1	Value	Range	Resultant Capital	Value Rate Range
	(sqm)	($ m)	($ m)	($ psm)	($ psm)
Mackay2	11,929	26.8	27.6	2,247	2,314

Source: KPMG Corporate Finance analysis.

Notes:

1. Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

2. Includes balance land.

The resultant rates shown above are comparable to those exhibited by the sales evidence, included at Appendix 3, and summarised at Section 8.9. The resultant rate range reflected in this cross-check approach is comparable to sales 1, 2, 3, 6, 8 and 11 which show a rate range of $2,191 to $4,728 psm. The resultant rate range correlates with the aforementioned range shown by the market evidence, reflecting overall rental rates and balance land.

Valuation Conclusion

We are of the opinion that the market value for the Mackay property as at the Valuation Date is in the range shown in the table below:

Table 45: Mackay market value range

Property ($ m) ($ m) Market Value Range	Property ($ m) ($ m) Market Value Range
Mackay 26.8 27.6
Source: KPMG Corporate Finance analysis.

Brett McAuliffe FAPI, Certified Practising Valuer No. 65622 Registered Valuer No. 2129 (Qld)	Andrew Willsford AAPI, Certified Practising Valuer No. 65706 Registered Valuer No. 2727 (Qld)

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Appendix 7 – Marsden Park Property Profile and Valuation

Profile

Location

The Marsden Park property comprises a large format retail centre situated at 17-43 Hollinsworth Road, in the suburb of Marsden Park, NSW, with frontages to Chifley Glade, Hollinsworth Road and Richmond Road, approximately 37 radial kilometres north-west of the Sydney GPO.

The position of the property is shown in the aerial photograph below:

==> picture [426 x 236] intentionally omitted <==

Source: Nearmap, KPMG Corporate Finance analysis.

Legal description

The Marsden Park property comprises one allotment legally described as Lot 139 on Deposited Plan 1190289.

The Registered Owner is shown on the Certificate of Title as Homeco (Marsden Park) Pty Ltd.

Site particulars

The Marsden Park property comprises a near level, irregular shaped parcel of land having a total site area of 34,920 sqm, zoned “B5 Business Development” under the State Environmental Planning Policy (Sydney Region Growth Centres) 2006.

Improvements

The Marsden Park property is improved with one building forming a large format retail centre configured as 15 tenancy areas with a GLA of 11,507 sqm and car parking for 387 cars.

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The layout of the centre is shown in the Plan below:

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Source: Management.

The photographs of the property set out below, were taken during our on-site physical inspection on 5 April 2021.

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Occupancy details

Management have provided us with occupancy details summarised below:

Table 46: Marsden Park occupancy details

Tenancy No	Tenant	GLA1 (sqm)	Lease Term	Options	Year of Lease
			(years)	(years)	Commencement
T001	Nick Scali	1,889	7	2 x 5	2017
T002	Recline Furniture	639	7	-	2018
T003	Bing Lee	1,100	5	-	2017
T004	Anaconda	1,729	10	-	2018
T04A	Anytime Fitness	669	5	-	2019
T005	Rebel Sport	1,396	8	-	2017
T006	Petbarn	746	8	-	2018
T007	Ashley Furniture	996	10	-	2017
T008	Home Sweet Home	1,602	10	5	2020
T009	James Lane	706	7	-	2018
Café	Vacant	23
SCR	Southern Cross Recycling	0	3	-	2019
TOMRA	TOMRA	0	4	4	2018
SMG	Shopper Media Group	0	5	5	2019
Carwash	Shine On Car Wash	14	8	-	2020
		11,507

Source: KPMG Corporate Finance analysis. Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

We have calculated the WALE by income based on the above occupancy details to be 4.9 years.

Valuation

We have assessed a market value range for the Marsden Park property as at the Valuation Date through an Income Approach cross-checked through a Market Approach.

Income Approach

Our valuation inputs to the capitalisation method are summarised below.

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Income

We have reviewed:

the tenancy schedule and lease documentation to determine the current gross passing income; and
the available market rental evidence in comparison to the property to determine the gross market income on a fully leased basis.

We have then deducted estimated outgoings to derive a net income on a fully leased basis.

Capitalisation Rate

In deriving an appropriate capitalisation rate range to apply in our calculations we have had regard to the available market evidence, included at Appendix 3, and summarised at Section 8.6.

We consider sales 1, 2, 4 and 7 to provide the best guide for appropriate comparison and capitalisation rate selection. These sales provide a range in Initial Yields of between 3.95% and 5.98%. We consider that an appropriate capitalisation rate for the Marsden Park property to be higher than the range due to the tenancy mix, WALE, adopted market rents and overall quantum.

We have applied the following capitalisation rate range to the assessed net income on a fully leased basis.

Table 47: Marsden Park adopted capitalisation rate range

Property	Adopted	Capitalisation Rate Range
	(%)	(%)
Marsden Park	5.50%	5.25%

Source: KPMG Corporate Finance analysis.

Adjustments

We have made below the line adjustments to our assessed capital value for the following allowances:

letting up allowances for current vacancies
re-letting allowances for imminent expiries (where lease expiry is within 24 months)
outstanding incentives, and
budgeted capital expenditure.

We have calculated the value range through the capitalisation method to be:

Table 48: Marsden Park value range through capitalisation method

Property		Market Value Range
	($ m)		($ m)
Marsden Park	53.8		56.4

Source: KPMG Corporate Finance analysis.

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Market Approach

Table 49: Marsden Park market-based cross-check

Property	GLA1	Value	Range	Resultant Capital	Value Rate Range
	(sqm)	($ m)	($ m)	($ psm)	($ psm)
Marsden Park	11,507	53.8	56.4	4,676	4,902

Source: KPMG Corporate Finance analysis.

Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

The resultant rates shown above are comparable to those exhibited by the sales evidence, included at Appendix 3, and summarised at Section 8.9. The resultant rate range reflected in this cross-check approach is comparable to sales 1, 2, 4 and 7 which show a rate range of $3,740 to $4,788 psm. The resultant rate range correlates with the aforementioned range shown by the market evidence, reflecting the value of underlying land.

Valuation Conclusion

We are of the opinion that the market value for the Marsden Park property as at the Valuation Date is in the range shown in the table below:

Table 50: Marsden Park market value range

Property ($ m) ($ m) Market Value Range	Property ($ m) ($ m) Market Value Range
Marsden Park 53.8 56.4
Source: KPMG Corporate Finance analysis.

Brett McAuliffe FAPI, Certified Practising Valuer No. 65622	Adam Brackenridge-McMonigal AAPI, Certified Practising Valuer No. 69735

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Appendix 8 – South Morang Property Profile and Valuation

Profile

Location

The South Morang property comprises a large format retail centre situated at 825 Plenty Road, in the suburb of South Morang, VIC, with frontages to McDonalds Road and Plenty Road, approximately 21 radial kilometres north-east of the Melbourne GPO.

The position of the property is shown in the aerial photograph below:

==> picture [426 x 233] intentionally omitted <==

Source: Nearmap, KPMG Corporate Finance analysis.

Legal description

The South Morang property comprises one allotment legally described as Lot 1 on Plan of Subdivision 635808H.

The Registered Owner is HomeCo (South Morang) Pty Ltd.

Site particulars

The South Morang property comprises a near level, irregular shaped parcel of land having a total site area of 35,870 sqm, zoned “Commercial 2 Zone” under the City of Whittlesea Council.

Improvements

The South Morang property is improved with one building forming a large format retail centre configured as 12 tenancy areas with a GLA of 11,192 sqm and car parking for 561 cars.

The layout of the centre is shown in the Plan below:

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==> picture [426 x 279] intentionally omitted <==

Source: Management.

The photographs of the property set out below, were taken during our on-site physical inspection on 9 April 2021.

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==> picture [191 x 117] intentionally omitted <==

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Occupancy details

Management have provided us with occupancy details summarised below:

Table 51: South Morang occupancy details

Tenancy No	Tenant	GLA1 (sqm)	Lease Term	Options	Year of Lease
			(years)	(years)	Commencement
T01	Amart Furniture	3,730	10	5+5+5	2017
T01A	Ashley Furniture	2,276	7	5	2021
T02	Beds N Dreams	561	5	5+5	2019
T03	Johnny's Furniture	1,037	5	-	2020
T04	Beacon Lighting	701	10	-	2018
T05	Decorug	436	10	-	2017
T06	Carpet Call	451	5	-	2017
T07/9	Plenty Valley Medical Centre	1,370	5	5+5+5	2019
T08	Chipmunks	565	10	5	2020
K01	Cafe Mizzle	65	5	5	2020
SMG	Shopper Media Group	0	5	5	2019
SCR	Southern Cross Recycling	0	3	0	2019
		11,192

Source: KPMG Corporate Finance analysis.

Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

We have calculated the WALE by income based on the above occupancy details to be 5.6 years.

Valuation

We have assessed a market value range for the South Morang property as at the Valuation Date through an Income Approach cross-checked through a Market Approach.

Income Approach

Our valuation inputs to the capitalisation method are summarised below.

Income

We have reviewed:

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the tenancy schedule and lease documentation to determine the current gross passing income; and
the available market rental evidence in comparison to the property to determine the gross market income on a fully leased basis.

We have then deducted estimated outgoings to derive a net income on a fully leased basis.

Capitalisation Rate

In deriving an appropriate capitalisation rate range to apply in our calculations we have had regard to the available market evidence, included at Appendix 3, and summarised at Section 8.6.

We consider sales 1, 2, 5, 9 and 10 to provide the best guide for appropriate comparison and capitalisation rate selection. These sales provide a range in Initial Yields of between 4.63% and 7.19%. We consider that an appropriate capitalisation rate for the South Morang property to be within the range due to the tenancy mix, WALE, adopted market rents and overall quantum.

We have applied the following capitalisation rate range to the assessed net income on a fully leased basis.

Table 52: South Morang adopted capitalisation rate range

Property	Adopted Capitalisation Rate Range	Adopted Capitalisation Rate Range
	(%)	(%)
South Morang	6.50%	6.25%

Source: KPMG Corporate Finance analysis.

Adjustments

We have made below the line adjustments to our assessed capital value for the following allowances:

re-letting allowances for imminent expiries (where lease expiry is within 24 months)
reversions where passing rental differs to our adopted market rental
outstanding incentives, and
budgeted capital expenditure.

We have calculated the value range through the capitalisation method to be:

Table 53: South Morang value range through capitalisation method

Property		Market Value Range
	($ m)		($ m)
South Morang	35.6		37.1

Source: KPMG Corporate Finance analysis.

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Market Approach

Table 54: South Morang market-based cross-check

Property	GLA1	Value	Range	Resultant Capital	Value Rate Range
	(sqm)	($ m)	($ m)	($ psm)	($ psm)
South Morang	11,192	35.6	37.1	3,181	3,315

Source: KPMG Corporate Finance analysis.

Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

The resultant rates shown above are comparable to those exhibited by the sales evidence, included at Appendix 3, and summarised at Section 8.9. The resultant rate range reflected in this cross-check approach is comparable to sales 1, 2, 5, 9 and 10 which show a rate range of $2,263 to $4,465 psm. The resultant rate range correlates with the aforementioned range shown by the market evidence.

Valuation Conclusion

We are of the opinion that the market value for the South Morang property as at the Valuation Date is in the range shown in the table below:

Table 55: South Morang market value range

Property ($ m) ($ m) Market Value Range	Property ($ m) ($ m) Market Value Range
South Morang 35.6 37.1
Source: KPMG Corporate Finance analysis.

Brett McAuliffe FAPI, Certified Practising Valuer No. 65622	Adam Brackenridge-McMonigal AAPI, Certified Practising Valuer No. 69735

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Appendix 9 – Toowoomba Property Profile and Valuation

Profile

Location

The Toowoomba property comprises a large format retail centre situated at 471 Hume Street, in the suburb of Kearneys Spring at Toowoomba, QLD, with frontages to approximately four radial kilometres south of the Toowoomba central business district.

The position of the property is shown in the aerial photograph below:

==> picture [426 x 236] intentionally omitted <==

Source: Nearmap, KPMG Corporate Finance analysis.

Legal description

The Toowoomba property comprises two allotments legally described as Lot 7 on Survey Plan 270212 and Lot 8 on Survey Plan 260912.

The Registered Owner is Home Consortium Property Pty Ltd.

Site particulars

The Toowoomba property comprises a near level, hatchet shaped parcel of land having a total site area of 32,248 sqm, zoned “Major Centre” under the Toowoomba Regional Planning Scheme.

Improvements

The Toowoomba property is improved with one building forming a large format retail centre configured as 7 tenancy areas with a GLA of 11,360 sqm and car parking for 370 cars.

The layout of the centre is shown in the Plan below:

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==> picture [426 x 243] intentionally omitted <==

Source: Management.

The photographs of the property set out below, were taken during our on-site physical inspection on 3 April 2021.

==> picture [198 x 112] intentionally omitted <==

==> picture [203 x 112] intentionally omitted <==

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==> picture [203 x 124] intentionally omitted <==

Occupancy details

Management have provided us with occupancy details summarised below:

Table 56: Toowoomba occupancy details

Tenancy No	Tenant	GLA1	Lease Term	Options	Year of Lease
		(sqm)	(years)	(years)	Commencement
T01	Nick Scali	2,669	7	2 x 5	2018
T02	Oz Design	800	10	6	2017
T03	Choice The Discount Store	1,097	10	5	2018
T06	Amart Furniture	5,360	10	3 x 5	2018
T07	Vacant	171
T08	Vacant	162
T09	EarlySettler	1,101	5	5	2017
		11,360

Source: KPMG Corporate Finance analysis.

Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

We have calculated the WALE by income based on the above occupancy details to be 5.8 years.

Valuation

We have assessed a market value range for the Toowoomba property as at the Valuation Date through an Income Approach cross-checked through a Market Approach.

Income Approach

Our valuation inputs to the capitalisation method are summarised below.

Income

We have reviewed:

the tenancy schedule and lease documentation to determine the current gross passing income; and
the available market rental evidence in comparison to the property to determine the gross market income on a fully leased basis.

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We have then deducted estimated outgoings to derive a net income on a fully leased basis.

Capitalisation Rate

In deriving an appropriate capitalisation rate range to apply in our calculations we have had regard to the available market evidence, included at Appendix 3, and summarised at Section 8.6.

We consider sales 1, 2, 3, 6 and 8 and 11 to provide the best guide for appropriate comparison and capitalisation rate selection. These sales provide a range in Initial Yields of between 4.63% and 8.21%. We consider that an appropriate capitalisation rate for the Toowoomba property to be at the upper end of the range due to the tenancy mix, WALE, adopted market rents and overall quantum.

We have applied the following capitalisation rate range to the assessed net income on a fully leased basis.

Table 57: Toowoomba adopted capitalisation rate range

Property	Adopted	Capitalisation Rate Range
	(%)	(%)
Toowoomba	7.00%	6.75%

Source: KPMG Corporate Finance analysis.

Adjustments

We have made below the line adjustments to our assessed capital value for the following allowances:

letting up allowances for current vacancies
re-letting allowances for imminent expiries (where lease expiry is within 24 months)
reversions where passing rental differs to our adopted market rental, and
budgeted capital expenditure.

Management have advised that there are no outstanding incentives as at the Valuation Date.

We have calculated the value range through the capitalisation method to be:

Table 58: Toowoomba value range through capitalisation method

Property		Market Value Range
	($ m)		($ m)
Toowoomba	31.5		32.7

Source: KPMG Corporate Finance analysis.

Market Approach

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Table 59: Toowoomba market-based cross-check

Property	GLA1	Value	Range	Resultant Capital Value Rate Range	Resultant Capital Value Rate Range
	(sqm)	($ m)	($ m)	($ psm)	($ psm)
Toowoomba	11,360	31.5	32.7	2,773	2,879

Source: KPMG Corporate Finance analysis. Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

Valuation Conclusion

We are of the opinion that the market value for the Toowoomba property as at the Valuation Date is in the range shown in the table below:

Table 60: Toowoomba market value range

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Property Market Value Range
($ m) ($ m)
Toowoomba 31.5 32.7
Source: KPMG Corporate Finance analysis.
Brett McAuliffe Andrew Willsford
FAPI, Certified Practising Valuer No. 65622 AAPI, Certified Practising Valuer No. 65706
Registered Valuer No. 2129 (Qld) Registered Valuer No. 2727 (Qld)
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Appendix 10 – Upper Coomera Property Profile and Valuation

Profile

Location

The Upper Coomera property comprises a large format retail centre situated at 1 Coomera Grand Drive, in the suburb of Upper Coomera, QLD, with frontages to Coomera Grand Drive, Days Road and Old Coach Road, approximately 22 radial kilometres north-west of Surfers Paradise.

The position of the property is shown in the aerial photograph below:

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Source: Nearmap, KPMG Corporate Finance analysis.

Legal description

The Upper Coomera property comprises one allotment legally described as Lot 1 on Survey Plan 249419.

The Registered Owner is HomeCo (Upper Coomera) Pty Ltd.

Site particulars

The Upper Coomera property comprises a near level, irregular shaped parcel of land having a total site area of 34,990 sqm, zoned “Centre” under the Gold Coast City Plan.

Improvements

The Upper Coomera property is improved with one building forming a large format retail centre configured as 13 tenancy areas with a GLA of 11,261 sqm and car parking for 374 cars.

The layout of the centre is shown in the Plan below:

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Source: Management.

The photographs of the property set out below, were taken during our on-site physical inspection on 6 April 2021.

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Occupancy details

Management have provided us with occupancy details summarised below:

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Table 61: Upper Coomera occupancy details

Tenancy No	Tenant	GLA1	Lease Term	Options	Year of Lease
		(sqm)	(years)	(years)	Commencement
T01	Super Cheap Auto	858	8	3 x 8	2018
T02	Vacant	140
T03	TK Maxx	1,984	9	2 x 5	2018
T04	Spotlight	2,492	10	3 x 10	2018
T05	Choice Discount Variety	1,655	10	5	2021
T06	Vacant	491
T07	EMF	2,241	9	5	2018
T08	Q-Scan Services	537	10	2 x 5	2019
T09	Petbarn	718	8	3 x 8	2018
T11	Johnny H Barber	37	5	5	2019
T12	AIO Group Pty Ltd	108	1	-	2020
SCR	Southern Cross recycling	0	3	-	2019
SMG	Shopper Media Group	0	5	5	2019
		11,261

Source: KPMG Corporate Finance analysis.

Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

We have calculated the WALE by income based on the above occupancy details to be 7.0 years.

Valuation

We have assessed a market value range for the Upper Coomera property as at the Valuation Date through an Income Approach cross-checked through a Market Approach.

Income Approach

Our valuation inputs to the capitalisation method are summarised below.

Income

We have reviewed:

the tenancy schedule and lease documentation to determine the current gross passing income; and
the available market rental evidence in comparison to the property to determine the gross market income on a fully leased basis.

We have then deducted estimated outgoings to derive a net income on a fully leased basis.

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Capitalisation Rate

In deriving an appropriate capitalisation rate range to apply in our calculations we have had regard to the available market evidence, included at Appendix 3, and summarised at Section 8.6.

We consider sales 1, 2, 3, 6 and 8 to provide the best guide for appropriate comparison and capitalisation rate selection. These sales provide a range in Initial Yields of between 4.63% and 6.39%. We consider that an appropriate capitalisation rate for the Upper Coomera property to be at the upper end of the range due to the tenancy mix, WALE, adopted market rents and overall quantum.

We have applied the following capitalisation rate range to the assessed net income on a fully leased basis.

Table 62: Upper Coomera adopted capitalisation rate range

Property	Adopted Capitalisation Rate Range	Adopted Capitalisation Rate Range
	(%)	(%)
Upper Coomera	6.25%	6.00%

Source: KPMG Corporate Finance analysis.

Adjustments

We have made below the line adjustments to our assessed capital value for the following allowances:

letting up allowances for current vacancies
re-letting allowances for imminent expiries (where lease expiry is within 24 months)
reversions where passing rental differs to our adopted market rental, and
budgeted capital expenditure.

Management have advised that there are no outstanding incentives as at the Valuation Date.

We have calculated the value range through the capitalisation method to be:

Table 63: Upper Coomera value range through capitalisation method

Property		Market Value Range
	($ m)		($ m)
Upper Coomera	37.8		39.4

Source: KPMG Corporate Finance analysis.

Market Approach

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Table 64: Upper Coomera market-based cross-check

Property	GLA1	Value	Range	Resultant Capital Value Rate Range	Resultant Capital Value Rate Range
	(sqm)	($ m)	($ m)	($ psm)	($ psm)
Upper Coomera	11,261	37.8	39.4	3,357	3,499

Source: KPMG Corporate Finance analysis.

Note 1: Reported GLA is estimated as at 23 April 2021 and is subject to ongoing design changes.

The resultant rates shown above are comparable to those exhibited by the sales evidence, included at Appendix 3, and summarised at Section 8.9. The resultant rate range reflected in this cross-check approach is comparable to sales 1, 2, 3, 6 and 8 which show a rate range of $2,191 to $4,728 psm. The resultant rate range correlates with the aforementioned range shown by the market evidence.

Valuation Conclusion

We are of the opinion that the market value for the Upper Coomera property as at the Valuation Date is in the range shown in the table below:

Table 65: Upper Coomera market value range

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Property Market Value Range
($ m) ($ m)
Upper Coomera 37.8 39.4
Source: KPMG Corporate Finance analysis.
Brett McAuliffe Andrew Willsford
FAPI, Certified Practising Valuer No. 65622 AAPI, Certified Practising Valuer No. 65706
Registered Valuer No. 2129 (Qld) Registered Valuer No. 2727 (Qld)
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PART TWO – FINANCIAL SERVICES GUIDE

Dated 12 May 2021

What is a Financial Services Guide (FSG)?

This FSG is designed to help you to decide whether to use any of the general financial product advice provided by KPMG Financial Advisory Services (Australia) Pty Ltd ABN 43 007 363 215 , Australian Financial Services Licence Number 246901 (of which KPMG Corporate Finance is a division) ( KPMG Corporate Finance ), Bill Allen as an authorised representative of KPMG Corporate Finance, authorised representative number 405336 and Sean Collins as an authorised representative of KPMG Corporate Finance, authorised representative number 404189 ( Authorised Representative ).

This FSG includes information about:

KPMG Corporate Finance and its Authorised Representative and how they can be contacted;
The services KPMG Corporate Finance and its Authorised Representative are authorised to provide;
How KPMG Corporate Finance and its Authorised Representative are paid;
Any relevant associations or relationships of KPMG Corporate Finance and its Authorised Representative;
How complaints are dealt with as well as information about internal and external dispute resolution systems and how you can access them; and
The compensation arrangements that KPMG Corporate Finance have in place .

The distribution of this FSG by the Authorised Representative has been authorised by KPMG Corporate Finance.

This FSG forms part of an Independent Expert’s Report ( Report ) which has been prepared for inclusion in a disclosure document or, if you are offered a financial product for issue or sale, a Product Disclosure Statement ( PDS ). The purpose of the disclosure document or PDS is to help you make an informed decision in relation to a financial product. The contents of the disclosure document or PDS, as relevant, will include details such as the risks, benefits and costs of acquiring the particular financial product.

Financial services that KPMG Corporate Finance and the Authorised Representative are authorised to provide

KPMG Corporate Finance holds an Australian Financial Services Licence, which authorises it to provide, amongst other services, financial product advice for the following classes of financial products:

Deposit and non-cash payment products;
Derivatives;
Foreign exchange contracts;

to provide general financial product advice in the form of a Report to be included in the Notice of Extraordinary General Meeting and Explanatory Memorandum ( Document ) prepared by Client in relation to the proposed transaction ( Transaction ). You have not engaged KPMG Corporate Finance or the Authorised Representative directly but have received a copy of the Report because you have been provided with a copy of the Document. Neither KPMG Corporate Finance nor the Authorised Representative are acting for any person other than the Client.

Government debentures, stocks or bonds;
Interests in managed investments schemes including investor directed portfolio services;

KPMG Corporate Finance and the Authorised Representative are responsible and accountable to you for ensuring that there is a reasonable basis for the conclusions in the Report.

Securities;
Superannuation;
Carbon units;
Australian carbon credit units; and
Eligible international emissions units,

to retail and wholesale clients.

We provide financial product advice when engaged to prepare a report in relation to a transaction relating to one of these types of financial products. The Authorised Representative is authorised by KPMG Corporate Finance to provide financial product advice on KPMG Corporate Finance's behalf.

KPMG Corporate Finance and the Authorised Representative's responsibility to you

KPMG Corporate Finance has been engaged by the Independent Directors of HMC Funds Management Limited as responsible entity for the Home Co. Daily Needs REIT and the Independent Directors of Home Co. Daily Needs REIT ( Client )

General Advice

As KPMG Corporate Finance has been engaged by the Client, the Report only contains general advice as it has been prepared without taking into account your personal objectives, financial situation or needs.

You should consider the appropriateness of the general advice in the Report having regard to your circumstances before you act on the general advice contained in the Report.

You should also consider the other parts of the Document before making any decision in relation to the Transaction.

Fees KPMG Corporate Finance may receive, and remuneration or other benefits received by our representatives

KPMG Corporate Finance charges fees for preparing reports. These fees will usually be agreed with, and paid by, the Client. Fees are agreed on either a fixed fee or a time cost basis. In this

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instance, the Client has agreed to pay KPMG Corporate Finance $155,000 for preparing the Report. KPMG Corporate Finance and its officers, representatives, related entities and associates will not receive any other fee or benefit in connection with the provision of the Report.

KPMG Corporate Finance officers and representatives (including the Authorised Representative) receive a salary or a partnership distribution from KPMG’s Australian professional advisory and accounting practice (the KPMG Partnership). KPMG Corporate Finance's representatives (including the Authorised Representative) are eligible for bonuses based on overall productivity. Bonuses and other remuneration and benefits are not provided directly in connection with any engagement for the provision of general financial product advice in the Report.

Further details may be provided on request.

Referrals

Neither KPMG Corporate Finance nor the Authorised Representative pay commissions or provide any other benefits to any person for referring customers to them in connection with a Report.

Associations and relationships

Through a variety of corporate and trust structures KPMG Corporate Finance is controlled by and operates as part of the KPMG Partnership. KPMG Corporate Finance’s directors and Authorised Representatives may be partners in the KPMG Partnership. Each Authorised Representative is a partner in the KPMG Partnership. The financial product advice in the Report is provided by KPMG Corporate Finance and the Authorised Representative and not by the KPMG Partnership.

From time to time KPMG Corporate Finance, the KPMG Partnership and related entities (KPMG entities) may provide professional services, including audit, tax and financial advisory services, to companies and issuers of financial products in the ordinary course of their businesses.

KPMG entities have provided a range of services to Home Consortium Limited and Home Consortium Developments Limited for which professional fees are received. Over the past two years professional fees of approximately $0.2 million have been received Home Consortium Limited and Home Consortium Developments Limited. None of those services have related to the Transaction or alternatives to the Transaction.

No individual involved in the preparation of this Report holds a substantial interest in, or is a substantial creditor of, the Client or has other material financial interests in the transaction.

Complaints resolution

Internal complaints resolution process

If you have a complaint, please let either KPMG Corporate Finance or the Authorised Representative know. Formal complaints should be sent in writing to The AFSL Complaints Officer, KPMG, PO Box H67, Australia Square, Sydney NSW 1213. If you have difficulty in putting your complaint in writing, please telephone the Complaints Officer on 02 9335 7000 and they will assist you in documenting your complaint.

Written complaints are recorded, acknowledged within 5 days and investigated. As soon as practical, and not more than 45 days after receiving the written complaint, the response to your complaint will be advised in writing.

External complaints resolution process

If KPMG Corporate Finance or the Authorised Representative cannot resolve your complaint to your satisfaction within 45 days, you can refer the matter to the Australian Financial Complaints Authority (AFCA). AFCA is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial services industry.

Further details about AFCA are available at the AFCA website www.afca.org.au or by contacting them directly at:

Address: Australian Financial Complaints Authority Limited, GPO Box 3, Melbourne Victoria 3001

Telephone: 1300 56 55 62 Facsimile: (03) 9613 6399 Email: [email protected].

The Australian Securities and Investments Commission also has a freecall infoline on 1800 931 678 which you may use to obtain information about your rights.

Compensation arrangements

KPMG Corporate Finance has professional indemnity insurance cover in accordance with section 912B of the Corporations Act 2001(Cth).

Contact Details

You may contact KPMG Corporate Finance or the Authorised Representative using the contact details:

KPMG Corporate Finance

A division of KPMG Financial Advisory Services (Australia) Pty Ltd

Level 38, Tower Three 300 Barangaroo Avenue Sydney NSW 2000 PO Box H67 Australia Square NSW 1213 Telephone: (02) 9335 7000 Facsimile: (02) 9335 7200

Bill Allen & Sean Collins

C/O KPMG PO Box H67 Australia Square NSW 1213 Telephone: (02) 9335 7000 Facsimile: (02) 9335 7200

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LODGE YOUR VOTE

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ONLINE

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www.linkmarketservices.com.au

BY MAIL
HomeCo Daily Needs REIT C/- Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Australia
BY FAX +61 2 9287 0309

 BY HAND Link Market Services Limited 1A Homebush Bay Drive, Rhodes NSW 2138  ALL ENQUIRIES TO Telephone: 1300 554 474 Overseas: +61 1300 554 474 X99999999999 X99999999999 PROXY FORM I/We being a member(s) of HomeCo Daily Needs REIT and entitled to attend and vote hereby appoint: APPOINT A PROXY OR if you are NOT appointing the Chairman of the Meeting as your Name the Chairman of the proxy, please write the name and email of the person or body corporate Meeting (mark box) you are appointing as your proxy. An email will be sent to your Email appointed proxy with details on how to access the virtual meeting. or failing the person or body corporate named, or if no person or body corporate is named, the Chairman of the Meeting, as my/our proxy to act on my/our behalf (including to vote in accordance with the following directions or, if no directions have been given and to the extent permitted by the law, as the proxy sees fit) at the Extraordinary General Meeting of HomeCo Daily Needs REIT to be held at 11.00am on Wednesday 16 June 2021 (the Meeting ) and at any postponement or adjournment of the Meeting. The Meeting will be conducted as a virtual meeting and you can participate by logging in online at https://agmlive.link/HDN21 (refer to details in the Virtual Meeting Online Guide). The Chairman of the Meeting intends to vote undirected proxies in favour of each item of business. VOTING DIRECTIONS Proxies will only be valid and accepted by HomeCo Daily Needs REIT if they are signed and received no later than 48 hours before the Meeting. Please read the voting instructions overleaf before marking any boxes with an T Resolutions For Against Abstain * 1 Approval of the Acquisitions 2 Approval of the Selective Buy-Back



SIGNATURE OF UNITHOLDERS – THIS MUST BE COMPLETED

Unitholder 1 (Individual) Joint Unitholder 2 (Individual) Joint Unitholder 3 (Individual) Sole Director and Sole Company Secretary Director/Company Secretary (Delete one) Director

This form should be signed by the unitholder. If a joint holding, either unitholder may sign. If signed by the unitholder’s attorney, the power of attorney must have been previously noted by the registry or a certified copy attached to this form. If executed by a company, the form must be executed in accordance with the company’s constitution and the Corporations Act 2001 (Cth).

If you mark the Abstain box for a particular Item, you are directing your proxy not to vote on your behalf on a poll and your votes will not be counted in computing the required majority on a poll.

HDN PRX2101N

HOW TO COMPLETE THIS UNITHOLDER PROXY FORM

YOUR NAME AND ADDRESS

LODGEMENT OF A PROXY FORM

This is your name and address as it appears on HomeCo Daily Needs REIT’s unit register. If this information is incorrect, please make the correction on the form. Unitholders sponsored by a broker should advise their broker of any changes. Please note: you cannot change ownership of your units using this form.

This Proxy Form (and any Power of Attorney under which it is signed) must be received at an address given below by 11.00am on Monday 14 June 2021, being not later than 48 hours before the commencement of the Meeting. Any Proxy Form received after that time will not be valid for the scheduled Meeting.

APPOINTMENT OF PROXY

Proxy Forms may be lodged using the reply paid envelope or:

If you wish to appoint the Chairman of the Meeting as your proxy, mark the box in Step 1. If you wish to appoint someone other than the Chairman  ONLINE of the Meeting as your proxy, please write the name of that individual or www.linkmarketservices.com.au body corporate in Step 1. A proxy need not be a unitholder of HomeCo Login to the Link website using the holding details as shown Daily Needs REIT. on the Proxy Form. Select ‘Voting’ and follow the prompts to DEFAULT TO CHAIRMAN OF THE MEETING lodge your vote. To use the online lodgement facility, unitholders will need their “Holder Identifier” - Securityholder Reference Any directed proxies that are not voted on a poll at the Meeting will default Number (SRN) or Holder Identification Number (HIN). to the Chairman of the Meeting, who is required to vote those proxies as directed. Any undirected proxies that default to the Chairman of the BY MOBILE DEVICE QR Code Meeting will be voted according to the instructions set out in this Proxy Our voting website is designed specifically Form. for voting online. You can now lodge VOTES ON ITEMS OF BUSINESS – PROXY APPOINTMENT your proxy by scanning the QR code adjacent or enter the voting link You may direct your proxy how to vote by placing a mark in one of the www.linkmarketservices.com.au into boxes opposite each item of business. All your units will be voted in your mobile device. Log in using the accordance with such a direction unless you indicate only a portion of Holder Identifier and postcode for your voting rights are to be voted on any item by inserting the percentage or unitholding. number of units you wish to vote in the appropriate box or boxes. If you do not mark any of the boxes on the items of business, your proxy may To scan the code you will need a QR code reader application vote as he or she chooses. If you mark more than one box on an item your which can be downloaded for free on your mobile device. vote on that item will be invalid. BY MAIL APPOINTMENT OF A SECOND PROXY  HomeCo Daily Needs REIT You are entitled to appoint up to two persons as proxies to attend the C/- Link Market Services Limited Meeting and vote on a poll. If you wish to appoint a second proxy, an Locked Bag A14 additional Proxy Form may be obtained by telephoning HomeCo Daily Needs REIT’s unit registry or you may copy this form and return them Sydney South NSW 1235 both together. Australia To appoint a second proxy you must:  BY FAX (a) on each of the first Proxy Form and the second Proxy Form state the +61 2 9287 0309 percentage of your voting rights or number of units applicable to that form. If the appointments do not specify the percentage or number of  BY HAND votes that each proxy may exercise, each proxy may exercise half your delivering it to Link Market Services Limited votes. Fractions of votes will be disregarded; and 1A Homebush Bay Drive (b) return both forms together. Rhodes NSW 2138 SIGNING INSTRUCTIONS You must sign this form as follows in the spaces provided: * During business hours (Monday to Friday, 9:00am–5:00pm) Individual: where the holding is in one name, the holder must sign. Joint Holding: where the holding is in more than one name, either unitholder may sign. Power of Attorney: to sign under Power of Attorney, you must lodge the Power of Attorney with the registry. If you have not previously lodged this document for notation, please attach a certified photocopy of the Power of Attorney to this form when you return it. Companies:* where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001 ) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please indicate the office held by signing in the appropriate place.

CORPORATE REPRESENTATIVES

If a representative of the corporation is to attend the Meeting virtually the appropriate “Certificate of Appointment of Corporate Representative” must be received at [email protected] prior to admission in accordance with the Notice of Meeting. A form of the certificate may be obtained from HomeCo Daily Needs REIT’s unit registry or online at www.linkmarketservices.com.au.

AI assistant

HOMECO DAILY NEEDS REIT — Proxy Solicitation & Information Statement 2021

65046_rns_2021-05-17_97b4dc4f-eee4-4fc5-8cd7-25d1a414d90b.pdf

ASX RELEASE

NOTICE OF EXTRAORDINARY GENERAL MEETING 2021

INVESTORS

MEDIA

About HomeCo Daily Needs REIT

Notice of Extraordinary General Meeting

Letter from the Chairman

Simon Shakesheff

Notice of Extraordinary General Meeting

Business of the Meeting

1. Resolution 1 – Approval of the Acquisitions

Independent Expert's Report

Voting Exclusion

2. Resolution 2 – Approval of the Selective Buy-Back

Voting Exclusion

By order of the Board

Andrew Selim

Explanatory Memorandum

1. Introduction

1.1 Overview

1.2 Chair

1.3 Eligibility to vote

1.4 Voting methods

1.5 Voting

Attorneys

Corporate representatives

1.6 Voting by proxy

Proxy Forms received later than this time will be invalid.

1.7 Asking questions at the Meeting

Business of the Meeting

2. Resolution 1 – Approval of the Acquisitions

2.1 Overview

2.2 Summary of the LFR Portfolio

Notes :

2.3 Funding the Acquisitions

2.4 Financial impact

2.5 Advantages and disadvantages of the Acquisitions

2.6 Potential risks associated with the Acquisitions

2.7 Indicative Timetable

2.8 Listing Rule 10.1

2.9 Chapter 2E of the Corporations Act

2.10 Independent Expert's Report

2.11

Specific information required by Listing Rule 10.5

2.12 Directors' interests

2.13 Directors' recommendation

3. Resolution 2 – Approval of the Selective Buy-Back

3.1 Overview

3.2 Summary of the Selective Buy-Back Agreement

3.3 Funding and financial effect of the Selective Buy-Back

3.4 Advantages and disadvantages of the Selective Buy-Back

3.5 ASIC Relief Instrument

3.6 Directors' interests

3.7 Directors' recommendation

Schedule 1 – Definitions

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KPMG Corporate Finance

Independent Expert Report and Financial Services Guide

PART ONE – INDEPENDENT EXPERT’S REPORT

Introduction

The Proposed Transaction

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HDN

HMC

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Requirements for report

Opinion

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Fairness

3.1.1 Value of the LFR Portfolio

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3.2

Reasonableness

3.2.1

Compatibility of the LFR Portfolio acquisition with HDN’s strategic plan and impact on portfolio metrics

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3.2.2 Financial impact of the Proposed Transaction

HOMECO DAILY NEEDS REIT Proxy Solicitation & Information Statement 2021