UNITED HAMPSHIRE US REIT (SGX:ODBU)
United Hampshire US REIT - 1Q21 Cruising Above Stormy Clouds
- United Hampshire US REIT's 1Q21 distributable income was in line with our expectations. Grocery & necessity retail properties have maintained high occupancy at 93.9%. The new Publix Store at St Lucie West, Florida, opened ahead of schedule on 15 Apr 21.
- United Hampshire US REIT benefits from the recovery in domestic consumption boosted by the successful rollout of COVID-19 vaccination, healthy job creation and stimulus cheques.
- United Hampshire US REIT provides a 2021 distribution yield of 8.8% and trades at P/NAV of 0.95x. Maintain BUY. Target price: US$0.95.
RESULTS
- United Hampshire US REIT (SGX:ODBU) reported distributable income of US$7.6m for 1Q21, which is 1.3% above IPO forecast and in line with our expectations.
Resiliency anchored to necessity consumption at supermarkets and home improvement stores.
- Grocery & necessity retail properties maintained stable occupancy of 93.9% in 1Q21. All tenants at its strip centres have opened for business since Sep 20. Key supermarket and home improvement tenants Ahold Delhaize, Walmart, Lowe’s and The Home Depot recorded strong sales growths of 11.2%, 8.6%, 28.6% and 25% y-o-y respectively for 4Q20.
Healthy lease renewal.
- United Hampshire US REIT secured 15 new and renewed leases for 46,480sf of retail space in 1Q21, comprising in-line tenants in the F&B (eight tenants), consumer services (six tenants) and fitness (one tenant) sectors. Majority of the tenants provide essential goods or services and their leases are primarily triple net. Restaurant tenants have remained resilient as evidenced by the lease renewals during the quarter.
Self-storage facilities maintained uptrend momentum.
- Occupancies for two Self-Storage Properties at Carteret and Millburn were maintained above 93%. Occupancies for the two new Self-Storage Properties at Elizabeth and Perth Amboy continued to trend higher, hitting 43.7% and 12.9% respectively as of end-Mar 21. The four self-storage facilities contributed 7.8% of base rental income in Mar 21.
Prudent capital management.
- United Hampshire US REIT’s aggregate leverage of 37.5% is well within regulatory limit of 50%. Interest coverage ratio is healthy at 6.6x. United Hampshire US REIT does not have to refinance any bank loans until 2023.
STOCK IMPACT
Vaccination induces recovery in domestic consumption.
- In the US, about 37% of population has been fully vaccinated and another 10% of population has received one dose of COVID-19 vaccine. 75% of the US’ population is expected to be vaccinated in another three months. Smooth rollout of vaccination enhances consumer confidence. Many states have also eased safe distancing measures as daily new cases have stayed low. US retail sales expanded at a double-digit y-o-y growth rate in Mar 21, boosted by healthy job creation and stimulus cheques.
St Lucie West expansion completed ahead of schedule.
- The 54,965sf new Publix Store at St Lucie West, Florida, officially opened ahead of schedule on 15 Apr 21. United Hampshire US REIT has previously secured a new lease with Beall’s Outlet Stores with a tenure of seven years, which will occupy 57% of the space that Publix has vacated. Another 20% of the former Publix space has received expressions of interest from home furnishing to off-price retail sectors.
Sustainable growth for self-storage facilities.
- United Hampshire US REIT’s self-storage facilities are strategically located in the New York metropolitan area where there is an undersupply of self-storage facilities and have access to the nearby residential catchment. Occupancies have trended up since May 20 after lockdown guidelines were loosened. There is healthy growth in demand as homeowners have to de-clutter their homes, shift non-essential belongings to self-storage facilities, so as to create space for their home offices.
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 WALE of 8.1 years provides income stability. Only 2.9% of its leases by base rental income are expiring in 2021.
EARNINGS REVISION/RISK
- We maintain our existing DPU forecast.
VALUATION/RECOMMENDATION
- Enticing and irresistible yield spread. United Hampshire US REIT trades at 2021F distribution yield of 8.8%, which represents an attractive yield spread of 7.2% above the 10-year US government bond yield of 1.6%. It trades at P/NAV of 0.95x.
- Maintain BUY. Our target price of US$0.95 for United Hampshire US REIT is based on the dividend discount model (DDM) (cost of equity: 7.0%, terminal growth: 0.5%).
- See
SHARE PRICE CATALYST
- Recovery and normalisation of domestic consumption in the US.
- Increase in occupancies for United Hampshire US REIT’s four self-storage facilities.
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-05-17
SGX Stock
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