United Hampshire US REIT - UOB Kay Hian 2020-12-16: Defensive Yield From Necessity Consumption Of Groceries & Self-Storage

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

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

  • United Hampshire US REIT’s grocery-anchored and necessity-based retail properties cater to essential basic necessities, which are e-commerce resistant due to prohibitive last-mile logistic costs. Its defensive strength is further reinforced by blue-chip tenants and a long WALE of 8.4 years.
  • Demand for self-storage space is growing, due to an outflow of population from New York City to suburban areas in New Jersey and residents have to declutter their homes to create space for their home offices.
  • Initiate coverage on United Hampshire US REIT with BUY. 



United Hampshire US REIT - Investment Merits 

  • United Hampshire US REIT (SGX:ODBU) invests in income-producing real estate used primarily for grocery and necessity-based retail and self-storage purposes in the US. Its initial portfolio consisted of 18 grocery and necessity retail properties (85.8% of portfolio valuation) and four self-storage properties (14.2%), with an aggregate NLA of 3.2m sf spread across the East Coast with an appraised value of US$599.2m.

Grocery & necessity retail is e-commerce-resistant.

  • 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%.

Caters to essential basic necessities unaffected by the lockdown.

  • 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. Its strip centres stayed open during the recent lockdown and all tenants have been open for business since Sep 20. Rental collection was healthy at 97% for Sep 20 (Jun 20: 84.6%).

Quality tenants with long WALE.

  • 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 grocery & necessity retail properties have a long WALE of 8.4 years based on base rental income in Sep 20, which provides income stability.

Self-storage: Move-in rate has recovered.

  • United Hampshire US REIT’s self-storage facilities benefit from an outflow of population from New York City to suburban areas in New Jersey. Demand for self-storage space has increased as residents declutter their homes to create space for their home offices. According to Green Street Advisors, the move-in rental growth for the self-storage sector has reversed sharply from a decline in 2Q20 to +12% y-o-y in Oct 20.

Defensive yield from necessity consumption of groceries and self-storage.

  • United Hampshire US REIT’s grocery-anchored & necessity-based retail properties cater to essential basic necessities, which are e-commerce resistant due to prohibitive last-mile logistic costs. Its defensive strength is further reinforced by blue-chip tenants and a long WALE of 8.4 years.
  • Demand for self-storage space is growing, due to an outflow of population from New York City to suburban areas in New Jersey and residents have to declutter their homes to create space for their home offices.


United Hampshire US REIT - Earnings Forecast & Valuation

  • United Hampshire US REIT’s forecasts for income available for distribution to unitholders are US$23.8m for 2020 (10-month period from 12 Mar 20 to 31 Dec 20) and US$30.7m for 2021.
  • We forecast distribution of US$0.048/unit for 2020 and US$0.061/unit for 2021.

Attractive yield spread significantly above peers.


Initiate coverage on United Hampshire US REIT with BUY.






Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2020-12-16
SGX Stock Analyst Report BUY INITIATE BUY 0.92 SAME 0.92



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......