United Hampshire US REIT - UOB Kay Hian 2021-03-02: 2H20 Enticing & Irresistible Yield


United Hampshire US REIT - 2H20 Enticing & Irresistible Yield

  • United Hampshire US REIT’s 2H20 results were in line with our expectations with the highlights being resiliency from Grocery & Necessity Retail properties with a stable occupancy of 94.7% and high rental collections of 98.9%. Self-storage facilities’ occupancy rates improved significantly.
  • United Hampshire US REIT provides a defensive yield due to a long WALE of 8.2 years and blue chip tenants. United Hampshire US REIT provides a 2021 distribution yield of 9.2%, which represents an attractive yield spread of 7.8%, and trades at P/NAV of 0.9x.
  • Maintain BUY. Target price: US$0.95.


Benefitted from lower interest rates.

  • Gross revenue was marginally 1.5% below the IPO forecast in 2H20 due to a slowdown in leasing activities during the COVID-19 pandemic and delay in the opening of the Perth Amboy self-storage facility.
  • Other trust expenses were US$0.4m higher than forecast due to legal costs incurred for rent relief negotiations. Finance costs were 25.4%, or US$1.2m lower, due to interest rate swaps utilised to hedge its floating rate term loans into fixed rate, which were put in place at a favourable interest rate.

Almost business as usual.

  • Grocery & Necessity Retail properties maintained stable occupancy of 94.7%. All tenants at its strip centres have opened for business since Sep 20. Key grocery and home improvement tenants Ahold Delhaize, Walmart, Lowe’s and The Home Depot recorded strong growth in sales of 11.2%, 8.6%, 28.6% and 25% y-o-y respectively for 4Q20.

Tenants paying promptly.

  • Rental collections are prompt at 98.9%. United Hampshire US REIT incurred rent relief of US$0.6m to assist tenants in bridging through the COVID-19 pandemic and a provision of US$0.3m for doubtful debt, which are fairly manageable.

Healthy lease renewal.

  • United Hampshire US REIT secured 25 new and extended leases for 319,000sf of retail space in 2020. Majority of the leases benefit from rental increases during the lease terms and/or renewal options with built-in rental increases.

Demand for self-storage space boosted by WFH.

  • Occupancy for self-storage facilities has improved considerably and trended upward since the gradual lifting of the lockdown in May 20. Occupancies for the Carteret and Millburn self-storage facilities have hit above 90% in 4Q20. Occupancy for the Elizabeth self-storage has improved from 27.4% in 3Q20 to 36.6% in 4Q20. Rents have increased by 4.2%.
  • United Hampshire US REIT benefits from suburban migration and the trend towards work-from-home (WFH). Homeowners have to de-clutter their homes, shift non-essential belongings to self-storage facilities, so as to create space for their home offices.

Prudent capital management.

Stock Impact

  • Defensive yield from necessity consumption of groceries and self-storage. United Hampshire US REIT’s Grocery & Necessity 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.
  • Resiliency from long WALE. United Hampshire US REIT enjoys organic growth from built-in rental escalation for over 80% of its leases for Grocery & Necessity Retail properties. Its long weighted average lease to expiry (WALE) of 8.2 years provides income stability. Only 3.4% of its leases by base rental income are expiring in 2021.
  • Vaccination induces recovery. Retail sales in the US jumped 5.3% y-o-y in Jan 21. Rapid progress toward widespread vaccinations for COVID-19 is facilitating a recovery in consumer confidence and domestic consumption.
  • Developments at St Lucie West and Perth Amboy to commence in 1Q21. Construction of the new Publix Store at St Lucie West in Florida started in May 20 and is on track for completion in 1Q21. United Hampshire US REIT has secured Beall’s Outlet Stores for 57% of the space vacated by the previous Publix Store. Discussions are underway with a few prospective tenants for the remaining space. Its fourth self-storage facility Perth Amoy was completed and leasing activities commenced in Jan 21. Occupancy at Perth Amboy was 8% a month after opening.

Earnings revision

  • We kept our 2021 DPU forecast relatively unchanged at US$0.062.

Valuation & Recommendation

Attractive yield spread significantly above peers.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-03-02
SGX Stock Analyst Report BUY MAINTAIN BUY 0.95 UP 0.920