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United Hampshire US REIT - UOB Kay Hian 2020-08-14: 1H20 Delivering Inaugural DPU As Promised, Despite COVID-19 Pandemic

UNITED HAMPSHIRE US REIT (SGX:ODBU) | SGinvestors.io UNITED HAMPSHIRE US REIT (SGX:ODBU)

United Hampshire US REIT - 1H20 Delivering Inaugural DPU As Promised, Despite COVID-19 Pandemic

  • United Hampshire US REIT delivered its inaugural DPU of 1.78 US cents, which is in line with forecast despite the COVID-19 pandemic.
  • United Hampshire US REIT's key tenants, such as supermarkets, grocery stores and wholesale clubs, are thriving during the COVID-19 pandemic. Its strip centres are single-storey, open-air and equipped with large car parks, which are conducive for safe distancing. It is not disrupted by e-commerce as its physical stores serve as fulfilment hubs in tenants’ omni-channel strategy.
  • United Hampshire US REIT's distribution yield is attractive at 10.6% for 2021.



United Hampshire US REIT's 1H20 Results

  • United Hampshire US REIT (SGX:ODBU) has delivered its inaugural DPU of 1.78 US cents for the period 12 Mar 20 (listing date) to 30 Jun 20, which is in line with the forecast provided in its IPO prospectus.

Financial performance tracking forecast in IPO prospectus.

  • Gross revenue was 3.5% below forecast due to lower recoveries of reimbursable expenses incurred for Grocery & Necessity properties (strip centres). Base rents from its retail properties were above forecast but offset by rental relief of US$0.1m (abatement). Retail occupancy remains high at 95%.
  • United Hampshire US REIT experienced slower leasing activities for its self-storage properties due to “stay at home” orders during the onset of the COVID-19 pandemic.

Not adversely affected by rent deferrals.

  • United Hampshire US REIT granted rent deferrals of US$0.4m, which are expected to be collected in 2H20 and 2021. It made provisions of US$0.3m for rent relief currently under negotiation. Thus, net property income (NPI) was 5.5% below forecast. Finance costs were US$0.7m or 24.7% lower than forecast at US$2.1m. Distributable income was 0.2% above forecast due to the lower finance costs.

Achieved positive rental reversion.

  • United Hampshire US REIT has renewed and extended 11 leases representing 170,000sf of retail space. Average rental reversion for the five new leases was about +5%. Over 80% of its leases for Grocery & Necessity properties have built-in rental escalation. It has a long WALE of 8.4 years for grocery & necessity properties.

Capital management.

  • United Hampshire US REIT does not have to refinance any bank loans until 2023. Aggregate leverage is conservative at 36.2%. Its weighted average interest rate is 2.84%, while interest coverage ratio is healthy at 6.1x.


STOCK IMPACT


Resiliency from essential necessities.

  • All of United Hampshire US REIT’s properties, both grocery & necessity retail and self-storage, stayed open during the recent lockdown. 70% of its retail rental income is derived from essential businesses, such as grocery stores, wholesale clubs, home improvement stores and convenience stores. Retail tenants that contribute more than 90% of base rental income were open in June (May: 87%).

Grocery and wholesale tenants thriving.

  • Key tenants BJ’s Club, Ahold Delhaize and Walmart have reported growth in sales of 19.9%, 20.6% and 10% y-o-y respectively for their latest quarterly results. They contributed 13.5%, 10.4% and 5.7% of base rental income from Grocery & Necessity properties. Home improvement giant Home Depot (4.8% of base rental income) also reported growth in sales of 7.5% y-o-y.

Omni-channel strategy – Buy Online Pick-up In Store (BOPIS).

  • United Hampshire US REIT's single-storey open-air strip centres are equipped with large car parks, which are conducive for safe distancing. Many tenants have adopted an omni-channel strategy. Customers could place their orders online. The orders are subsequently fulfilled when customers visit the physical stores for curb-side pickup. United Hampshire US REIT support tenants’ omni-channel initiatives by designating selected parking lots for curb-side pickup.

Move-in rate for self-storage has picked up.

  • Leasing activities for self-storage facilities have increased due to gradual lifting of “stay at home” orders since May 20. Move-in rate has rebounded dramatically towards the end of 2Q20 and registered y-o-y growth in early-July. United Hampshire US REIT benefits from an outflow of population from New York to suburban areas. Occupancies for Carteret and Millburn self-storage facilities have hit 93% and 66% respectively.

Updates on development projects.

  • United Hampshire US REIT has commenced construction for St Lucie West Expansion with completion scheduled in 1Q21. The Elizabeth self-storage facility was completed in Jan 20 and occupancy has reached 19% in Jun 20. Construction for Perth Amboy self-storage facility was slightly delayed but is expected to complete in Aug 20.

Benefitting from positive demographic trends.

  • United Hampshire US REIT’s grocery & necessity and self-storage properties are strategically located in high density suburban markets across the East Coast. They benefit from higher growth in population and income in suburban areas, a trend that started since 2010.
  • Lately, the US has experienced a second wave of COVID-19 infections affecting primarily the South and Western regions of the US. The Northeast region, which accounted for 81% of United Hampshire US REIT’s appraised valuation, is left unscarred.


VALUATION/RECOMMENDATION


Attractive yield spread.






Singapore Research Team UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-08-14
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000


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