United Hampshire US REIT - UOB Kay Hian 2020-04-14: Defensive Yield From Necessity Consumption Of Groceries & Self-storage

UNITED HAMPSHIRE US REIT (SGX:ODBU)

United Hampshire US REIT - Defensive Yield From Necessity Consumption Of Groceries & Self-storage

United Hampshire US REIT (SGX:ODBU)’s grocery-anchored & necessity-based (GANB) retail and self-storage properties cater to essential basic necessities which are less sensitive to economic cycles and unaffected by the COVID-19-related shutdown. Grocery-anchored retail is also e-commerce-resistant due to prohibitive last-mile logistic costs.

United Hampshire US REIT’s defensive strength is further reinforced with blue-chip tenants and long WALE of 8.4 years. Demand for self-storage space is growing due to increasing acceptance of smaller multi-family dwellings.

United Hampshire US REIT (SGX:ODBU) is a Singapore REIT and was established with the principal investment strategy of investing in income-producing real estate used primarily for grocery-anchored & necessity-based (GANB) retail and self-storage purposes in the US. United Hampshire US REIT targets tenants who are resilient against the effects of e-commerce, including home improvement stores, grocery chains, restaurants, fitness centres, warehouse clubs and other retailers with robust omni-channel platforms.
United Hampshire US REIT aims to deliver regular and stable distributions to unitholders and to achieve long-term growth in DPU and NAV per unit while maintaining an appropriate capital structure.
The initial portfolio consisted of 22 assets with an aggregate NLA of about 3.2m sf, spread across the East Coast of the US with an appraised value of US$599.2m as at Sep 19. The initial portfolio comprised 18 GANB retail properties with a total NLA of about 2.9m sf and 4 self-storage properties with a total NLA of about 0.3m sf.
See attached PDF report for United Hampshire US REIT's portfolio overview, management reporting structure and details on United Hampshire US REIT'skey executive officers.

United Hampshire US REIT’s neighbourhood and community strip centres are often anchored by a supermarket that primarily caters to necessity consumption (non-discretionary), which is less sensitive to economic cycles. Delivery costs are prohibitive, particularly in suburban residential areas. This problem is especially acute for the grocery industry due to low offline grocery margins of 5-7%, which leave little room for delivery costs to be absorbed. Thus, online penetration for grocery sales remained at below 2% in 2019, vs online penetration for retail sales of 15%.

Demand for self-storage is triggered by life changes, such as death, divorce, downsizing to a smaller home and job dislocation (the four “D”s of self-storage), which are not synchronised to economic cycles. The proportion of multi-family housing starts as a % of total housing starts has expanded from 17.2% in 1991 to 29.7% in 2019. The increasing acceptance of smaller multi-family units, such as condominiums, apartments and townhouses, will drive homeowners’ demand for self-storage space as an extension of their home storage.

More than 70% of United Hampshire US REIT’s base rental income is derived from tenants engaged in businesses deemed essential, such as grocery stores, wholesale clubs, pharmacies and convenience stores. The majority of its GANB strip centres remain open. Grocery stores and wholesale clubs have experienced increase in demand, even in New York and New Jersey, which are states hard hit by the COVID-19 outbreak.

United Hampshire US REIT’s top-10 tenants include some of the largest grocers, wholesalers, home improvement retailers and discounters in the US, including Walmart, BJ's Wholesale Club, Ahold Delhaize, Lowe's and Home Depot. Its GANB retail properties have a long WALE of 8.4 years, based on base rental income in Sep 19, which provides income stability.
See United Hampshire US REIT Announcements; United Hampshire US REIT Latest News.

United Hampshire US REIT’s forecasts for income available for distribution to unitholders are US$24.4m for 2020 (10-month period from 1 Mar 20 to 31 Dec 20) and US$30.3m for 2021. Based on current share price of US$0.56, United Hampshire US REIT trades at annualised yield of 10.6% for 2020 and 10.9% for 2021 (see United Hampshire US REIT Share Price). This represents an attractive yield spread of 9.8% and 10.1% respectively above the 10-year US government bond yield of 0.8%.
United Hampshire US REIT’s forecasts for income available for distribution to unitholders are US$24.4m for 2020 (10-month period from 1 Mar 20 to 31 Dec 20) and US$30.3m for 2021. See attached PDF report for United Hampshire US REIT’s financial statements.
US REITs listed in Singapore are the closest comparables for United Hampshire US REIT. The average distribution yield for US REITs (across various sub-sectors) is 10.0%, lower than 10.6% for United Hampshire US REIT. See attached PDF report for peer comparison table.
In Singapore, the average distribution yield for retail S-REITs is lower at 6.8%. The average distribution yield for comparable REITs listed in the US is lower at 9.2% for retail REITs (strip centres) and 4.3% for self-storage.

Singapore Research Team UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-04-14

SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998