United Hampshire US REIT&rsquo s (UH REIT) unit price is down 4.4% this year. Although this may not be great, investors should compare it with the performance of US office REITs. Keppel Pacific Oak US REIT&rsquo s (KORE) unit price is down 51% while Prime US REIT&rsquo s unit price has lost 66%. The numbers do not even describe what is going on with Manulife US REIT (MUST), which is struggling to survive.

 

Why? When valuations decline, the value of assets under the management of REITs declines too. However, the impact of this decline is not the same for asset value and net asset value (NAV). Analysts have indicated that NAV falls a lot more for a small decline in portfolio value.

 

Take for instance the portfolio of a REIT valued at $100 and has a loan-to-value (aggregate leverage) of 40%. A 10% decline in asset value would result in a 16.7% decline in NAV. With a 50% LTV, the REIT&rsquo s NAV would fall by 20%.

 

Hence, if KORE&rsquo s portfolio declined by 10% (KORE&rsquo s portfolio was last valued in December 2022), then its NAV would fall by 16.2% based on its aggregate leverage of 38.4%. As it is, KORE&rsquo s unit price is down a lot more since the end of December 2022, with a market capitalisation of US$229.8 million ($311.9 million), compared to unitholders&rsquo fund of US$881 million and cash facilities of US$38 million. Notably, KORE&rsquo s manager takes all its fees in cash, which may account for some of the discounts.

 

Elsewhere, Prime US REIT&rsquo s LTV is at 42.8%. If its portfolio declined by 10%, NAV would fall by 17.5%. It has a market cap of US$163.8 million.

 

UH REIT&rsquo s portfolio comprises 21 mainly retail grocery & necessity properties, and two self-storage properties. Its unit price is trading at a hefty discount to its NAV of 71 US cents. For US REITs, its market capitalisation of US$246.9 million is second only to Digital Core REIT&rsquo s (DC REIT) market cap of US$625 million. On Sept 15, DC REIT will join the EPRA NAREIT Developed Index.

 

Apart from trading almost normally at DPU yields of 12%, UH REIT&rsquo s manager completed the divestment of a small property in August for US$9.9 million, a premium of 3.7% above the end-December 2022 valuation, and a 7.7% premium over the purchase price, which is an indication that the valuation of its portfolio is holding up.

 

Prefers AEI

 

Gerard Yuen, CEO of UH REIT&rsquo s manager, says: &ldquo It will be challenging [on the financing front to acquire]. Instead, we are focusing on asset enhancement initiatives (AEI). We recently announced a new building on our existing Florida property Academy Sports, one of the largest sporting goods retailers in the US for a 15-year lease. It&rsquo s all incrementally positive.&rdquo

 

According to UH REIT&rsquo s financial statement, Yuen is the spouse of the cousin of Wee Teng Wen, a director of UH REIT&rsquo s manager. Wee is also the managing director of The Lo and Behold Group and son of United Overseas Bank group CEO Wee Ee Cheong and grandson of Wee Cho Yaw.

 

Yuen has also said that his focus is not AUM but distributable income as his fees are linked to distributable income, hence the preference for ways to enhance NPI and DPU rather than AUM.

 

Says Yuen: &ldquo We will always look at AEI, especially in this current market, which is where there probably is a good way to enhance income, without having to put in a lot of capital. There is definitely some of this available space [for AEI].&rdquo

 

Office vs grocery & retail

 

Yuen is keen to draw a distinction between US grocery retail and US office sectors. US retail has gone through a paradigm shift in the past 15 years or so. Consultants point out that in the past decade, a lot of retail supply has been removed from the market. According to Coresight Research, US grocery retail is forecast to grow by 5.6% y-o-y to US$1.5 trillion this year and by a further 4.2% y-o-y to US$1.56 trillion in 2024.

 

Yuen says US grocery retail is somewhat a defensive sector. &ldquo Retail is driven by consumers and the US consumer is very healthy. US consumption accounts for 2/3 of GDP and is a big part of the US economy,&rdquo Yuen points out. &ldquo Within retail, you have to differentiate between discretionary retail and things people can cut down on. Our segment of the market comprises day-to-day necessities, supermarkets and casual dining.&rdquo

 

In 1HFY2023 ended June, UH REIT&rsquo s committed occupancy was 97.9%. Yuen indicates that the occupancy figure is more or less the portfolio&rsquo s physical occupancy. Some movement from tenants moving in and out is inevitable, but physical occupancy is more or less at the committed occupancy.

 

Yuen says: &ldquo When we say committed occupancy, our gap is actually units undergoing refurbishment before the tenant moves in. Office and retail are very different. The office sector is negatively affected by the work-from-home (WFH) phenomenon and physical occupancy is between 30% and 50% currently.&rdquo

 

Based on data released by the US Census Bureau, total retail sales for 1H2023 was up 3.2% y-o-y and Grocery Sales for June was up 1.1% y-o-y. US consumer confidence increased to a two year high in July amid a persistently tight labour market and receding inflation.

 

Citing independent research, UH REIT says the strip centre sector has benefitted from flexible work arrangements as consumers are spending more time at home than in the city centres where their offices are located. The added flexibility has increased demand for the goods and services offered in strip centres, ranging from grocery shopping to dining.

 

Yuen says: &ldquo We went on weekdays and found traffic flow was very good. If people are working from home, they can go and do their groceries. The gyms were pretty crowded It&rsquo s about flexibility. It&rsquo s no longer 9&ndash 5 and in the middle of the day you go to the gym.&rdquo

 

&ldquo There is talk about omnichannel and e-commerce. Our properties are well suited. They are situated where people can pick up their goods. We have huge parking lots. You buy your stuff online, you drive into the parking bay, and an employee puts your shopping into your boot. Some supermarkets create pods. The customer can go to the pod, open it and pick up their purchases. The majority of people who order stuff online go to the store and buy more,&rdquo he elaborates.

 

Since its IPO, UH REIT&rsquo s manager has divested two self-storage properties and acquired three grocery & necessity properties.

 

&ldquo We have talked about the resiliency of our asset class. Last year transaction volume was high for grocery retail and self-storage. This year interest rates have moved up, but ours is one of the least affected because borrowing is less key. Our properties range in value from US$10 million to US$90 million,&rdquo Yuen says.

 

In 1H2023, UH REIT&rsquo s gross revenue was US$36 million, up 13.3% y-o-y. This was mainly due to the rent commencement from new leases, rent escalations, and contributions from Upland Square, which was acquired in July 2022.

 

Property operating expenses for 1H2023 rose 9.7% y-o-y due to the acquisition of Upland Square. NPI rose 14% y-o-y to US$25.8 million while income available for distribution rose 2.2% y-o-y to $16.7 million. However UH REIT opted to retain US$1.5 million income of its income available for distribution, causing DPU to fall by 8.9% y-o-y to 2.65 US cents.

 

The manager usually opts to take its fees in units, and hence now and again it sells these units. &ldquo We are currently taking units. The manager is owned by Hampshire and UOB and we are subject to that same 9.8% ownership limit. So, when we receive units we have to sell them,&rdquo Yuen says.

 

Capital management

 

Yuen notes, &ldquo Our debt costs are thankfully not as high because if we were to borrow today, it can be quite expensive. It&rsquo s very important that we refinanced everything last year. We&rsquo ve locked in the cost of debt, and to some extent, locked in our hedging as well.&rdquo

 

As at June 30, UH REIT&rsquo s all-in cost of debt was at 3.57% and 80.90% of its debt is hedged. It has no expiries this year and a US$21.1 million expiry in 2024. However, finance costs of US$7.6 million for 1H2023 were higher than 1H2022 by US$3.2 million or 72.7%, largely due to the higher interest rates on the unhedged portion of Sofr term loan facilities.

 

In addition, the increase was also due to the Upland Square mortgage loan assumed in July 2022 to partially finance the acquisition of Upland Square.

 

Yuen also attributes the acquisition of Upland Square for US$85.7 million in June 2022 to UH REIT&rsquo s high aggregate leverage of 42%. The REIT divested two self-storage facilities which were lower yielding and acquired Upland Square which was higher yielding and it came with a mortgage loan priced at 3.6% for another four years.

 

&ldquo We were at 38% and we bought Upland Square. There was an existing mortgage loan and it was at 3.6% and we had a chance to assume that loan. It was an easy decision to make. We went above 40% because of this very attractive loan. The gearing is higher not because valuations are down. In December 2022, our valuations rose by 1.3% on a like-for-like basis. Even if our cap rate stayed constant, our net operating income has gone up which is why valuations are up,&rdquo Yuen explains.

 

In its financial results announcement, based on the discounted cash flow (DCF) valuation method, the discount rate for grocery & necessity properties ranged between 7.0% and 9.0% with a terminal capitalisation rate between 6.5% and 8.25%.

 

The discount rate for self-storage properties discount rate ranged between 7.75% and 8.0% with a terminal capitalisation rate of 5.25%. Capitalisation rates ranged between 6% and 7.75% for grocery & necessity properties while cap rates for self-storage properties were more compressed at 5%.

 

The financial statement said that a slight increase in the discount rate or terminal capitalisation rate would result in a significant decrease in fair value and vice versa. Similarly, a slight increase in the capitalisation rate would result in a significant decrease in fair value. Nevertheless, it has been so far so good for UH REIT. Of course, the management cannot control the unit price.

 

&ldquo We can deliver operational financial performance. When investors look at US REITs, unfortunately, one sector predominates. We have to differentiate ourselves. Secondly, within retail, we have to differentiate ourselves as necessity retail which is more resilient in downturns but doesn&rsquo t rise as much in upturns,&rdquo Yuen says.

 

Gross revenue for the period under review is up 13.3 per cent to US$36 million, due in part to contributions from Upland Square (pictured).

 

UNITED Hampshire US real estate investment trust (United Hampshire US Reit : ODBU -1.18%) on Saturday (Aug 12) posted a distribution per unit (DPU) of US$0.0265 for the first half of the year, down 8.9 per cent from US$0.0291 in the corresponding year-ago period.

 

The trust said the manager has opted to retain distributable income totalling US$1.5 million as capital reserves for asset enhancement and development initiatives. 

 

One example of such initiatives include the new Academy Sports + Outdoors store at Port St Lucie, the Reit said. 

 

Excluding this retention, the Reit&rsquo s DPU figure for H1 would have held steady at US$0.0291.

 

Gross revenue for the period under review was up 13.3 per cent to US$36 million, due primarily to rent commencement from new leases, rent escalations as well as contributions from Upland Square which was acquired in July 2022.

 

Property operating expenses rose 9.7 per cent to US$10.2 million, primarily on the acquisition of Upland Square. 

 

Consequently, net property income was up 14 per cent to US$25.8 million. 

 

United Hampshire US Reit&rsquo s finance costs for H1 rose 72.7 per cent to US$7.6 million largely due to the higher interest rates on the unhedged portion of secured overnight financing rate term loan facilities. The Reit also attributed the increase to the Upland Square mortgage loan assumed in July last year to partially finance the acquisition of Upland Square.

 

In H1, United Hampshire US Reit had entered into 22 new and renewal leases totalling 331,175 square feet. As at end-June, committed occupancy of its grocery and necessity properties&rsquo reached a high of 97.9 per cent, along with a weighted average lease expiry of 7.2 years

 

Gerard Yuen, chief executive of the manager, said that as part of the Reit&rsquo s active asset management and rejuvenation strategy, it has entered into an agreement to divest Big Pine Center at a premium to its purchase price and valuation as at end-December 2022.

 

&ldquo This highlights the continued resiliency in the value of this asset class,&rdquo he said, adding that the divestment will further contribute to the Reit&rsquo s financial flexibility to repay debt and pursue asset enhancement and investment opportunities.

 

Yuen said the construction of the Academy Sports + Outdoors store at Port St Lucie is &ldquo progressing well&rdquo and is on track to be completed in 2024.

 

The Reit said that with a protracted high interest rate environment, its manager will continue to focus on optimising the portfolio and strengthening its income streams through asset enhancement and rejuvenation initiatives to deliver long-term value to all unitholders.

 

United Hampshire US REIT Management, the manager of United Hampshire US REIT ODBU 1.19% (UHREIT), has sold 405,200 units in the REIT at 43 US cents (57.48 cents) apiece.

 

The disposal, which was conducted on June 15, leaves the REIT manager with a 0.307% stake, down from 0.377% before the sale.

 

This is the second time in almost a week that the REIT manager had disposed of its shares via the market.

 

On June 8, the REIT manager sold another 500,000 units in the REIT again at 43 US cents per unit, reducing its stake from 0.465% to 0.377% at the time.

 

The REIT manager, on May 19, had received 1.89 million units in the REIT at an issue price of 46.3 US cents. The units were issued as payment of 100% of the manager&rsquo s base fee for the period from Jan 1 to March 31.

 

On May 12, the REIT manager announced that the REIT' s distributable income for the 1QFY2023 ended March 31, grew by 7.6% y-o-y to US$8.8 million. The REIT' s gross revenue rose by 11.8% y-o-y to US$18.1 million while its net property income (NPI) for the period increased by 13.5% y-o-y to US$12.9 million.

 

UNITED Hampshire US real estate investment trust&rsquo s (Reit) distributable income for its first financial quarter rose 7.6 per cent on income from its third and largest acquisition, Upland Square Shopping Centre, in July 2022.

 

Distributable income for the three months ended Mar 31 rose to US$8.8 million, from US$8.1 million in the year-ago period, the Reit&rsquo s manager said in a business update on Friday (May 12).

 

Apart from the acquisition income, the manager said resilient performance of its existing properties also contributed to the rise in distributable income.

 

The Reit&rsquo s gross revenue for the quarter rose 11.8 per cent to US$18.1 million on the year, while its net property income rose 13.5 per cent to US$12.9 million.

 

Of the performance, Gerard Yuen, the chief executive officer of the manager, said: &ldquo We are delighted to report a strong performance for this quarter, with robust leasing momentum at our existing properties as well as continued positive contributions from Upland Square.&rdquo

 

He noted that the committed occupancy at its grocery and necessity properties has further increased to 97 per cent, backed by a diversified, cycle-agnostic tenant base providing day-to-day necessity goods and services. 

 

The tenant base includes large US retailer Walmart, which exercised its five-year renewal option at Hudson Valley Plaza, Yuen pointed out. Walmart is the Reit&rsquo s sixth largest tenant by gross rental income.

 

The lease extension is &ldquo a strong testament to the attractiveness of (the Reit&rsquo s) properties and the close relationship that we have built with our tenants, enabling them to maximise their omnichannel distribution capabilities at our open-air shopping centres&rdquo , he said.

 

Turning to address leasing momentum, the Reit&rsquo s manager said it remained healthy, with the execution of seven new and renewal leases totalling 217,089 square feet. 

 

As at Mar 31, its grocery and necessity properties&rsquo committed occupancy rate reached a high of 97 per cent, up slightly from 96.9 per cent as at Dec 31 last year, it said.

 

As for self-storage properties, performance has remained resilient, it added, pointing out that the occupancy rate for Carteret and Millburn stood at 91.7 per cent and 92.6 per cent respectively as at Mar 31.

 

Nevertheless, the manager said that as there are concerns over the slowing US economy and high interest rates, it will focus its efforts on optimising the portfolio and strengthening its income streams through asset enhancement initiatives.

GERARD Yuen, the chief financial officer of United Hampshire US Reit Management, will step up as the company&rsquo s new chief executive from May 1.

 

He will succeed current chief executive Robert Schmitt, who is stepping down for health reasons, the Reit manager announced in a Thursday (Mar 30) bourse filing.

 

Yuen was appointed CFO prior to the listing of United Hampshire US Reit : ODBU +4.44% in March 2020, and had helped with its initial public offering. Prior to that, he was a managing director with Nomura Singapore.

 

&ldquo Gerard and the team have been with the Reit since it was established, and we are confident of a smooth transition guided by an experienced and committed management team,&rdquo said the company&rsquo s chairman Tan Tong Hai.

 

Winnie Yap, the Reit manager&rsquo s finance director, will take over from Yuen as CFO. She has more than 19 years of experience in various financial and accounting functions.

 

United Hampshire US REIT has reported distributable income of US$16.8 million for 2HFY2022, up 5.2% over the preceding year ended Dec 31 2021.

 

For the full year, distributable income was up 6.2% to $33.1 million. Gross revenue for FY2022 was US$67.5 million, up 22.2% over FY2021.

 

The REIT, which owns a portfolio of malls and self-storage spaces, has reported a distribution per unit of 2.97 US cents for 2HFY2022, down 2.6% y-o-y. This brings UHREIT&rsquo s full year payout to 5.88 US cents, down 3.6%.

 

After taking into account a newly acquired property, UHREIT&rsquo s portfolio was valued at US$738.7 million as at Dec 31 2022, up 7.3% from Dec 31 2021.

 

&ldquo We have delivered strong performance underscored by our resilient portfolio,&rdquo says Robert Schmitt, CEO of UHREIT&rsquo s manager. &ldquo Income robustness was further boosted by proactive asset management and our third and largest DPU accretive acquisition of Upland Square.&rdquo

 

On the other hand, the &ldquo opportunistic&rdquo divestment of the two Self-Storage Properties, Elizabeth and Perth Amboy at a price above book value, coupled with the acquisition of Upland Square, illustrates

 

UHREIT&rsquo s ability to actively recycle capital into higher yielding assets, says Schmitt.

 

In Dec 2022, UHREIT refinanced its earlier term loan credit facilities maturing in 2023 and 2024. By doing so, UHREIT has almost doubled its weighted average debt maturity to 4 years from 2.1 years as at Sept 30 2022.

 

As such, UHREIT has no significant refinancing requirement until Nov 2026. Its aggregate leverage is 41.8%, within the 50% regulatory limit.

 

As at Dec 31 2022, 81.4% of UHREIT&rsquo s total loans are either fixed rate loans or floating rate loans that have been hedged using interest rate swaps.

 

&ldquo Against a backdrop of broader macro uncertainties caused by a high inflation rate and rising interest rates, the manager will continue to focus on portfolio optimisation and asset enhancement to strengthen UHREIT&rsquo s income streams.

 

&ldquo The manager will selectively look for suitable investment opportunities that will provide unitholders with long-term accretive value,&rdquo says UHREIT.

 

UNITED Hampshire US Real Estate Investment Trust : ODBU +2.08% (United Hampshire US Reit) on Wednesday (Nov 9) posted an 8.1 per cent rise in distributable income to US$8.3 million for the third quarter ended Sep 30, compared with US$7.7 million the year before.

 

Gross revenue climbed 24.7 per cent to US$17 million from US$13.6 million, while net property income (NPI) rose 15.2 per cent to US$11.9 million from US$10.3 million in the year-ago period. 

 

The Reit&rsquo s financial performance was boosted by contributions from the newly-acquired Upland Square Shopping Center and upward-trending rents on self-storage properties, partially offset by higher interest costs and the absence of top-ups, the manager said.

 

For the year-to-date period, distributable income was US$24.6 million, 7.5 per cent higher than the US$22.9 million recorded a year ago. Gross revenue was 20.6 per cent higher at US$48.7 million from US$40.4 million, while NPI was up 12.1 per cent to US$34.5 million from US$30.8 million.

 

The manager said the acquisition of Upland Square has increased tenant diversification, decreasing contributions from the top 10 tenants to 56.2 per cent in Q3 2022 from 66.1 per cent in Q3 2021. It has also maintained the portfolio focus on cycle-agnostic tenants providing essential services.

 

United Hampshire US Reit&rsquo s weighted average lease expiry (WALE) stood at 7.6 years for its grocery and necessity properties, including forward committed leases. Excluding these leases, WALE was 7.5 years as at Sep 30. 

 

Its portfolio currently comprises 21 grocery and necessity properties at two self-storage properties located across eight states on the US East coast. 

 

The Reit has an aggregate leverage of 42.1 per cent as at Sep 30 and an interest coverage ratio of 5.6 times. The manager said it is in negotiations with both existing and new lenders on refinancing options for its loan facilities maturing after 2022. It has no debt maturing in 2022. 

 

On Aug 24, United Hampshire US Reit : ODBU +0.83% Management Pte Ltd non-independent non-executive director David Tuvia Goss acquired 400,000 units of United Hampshire US Reit (UHREIT) at an average price of 60.4 US cents per unit. With a consideration of US$419,580 this took his direct interest in UHREIT to 0.21 per cent. UHREIT is the first US grocery-anchored shopping centre and self-storage Reit to list in Singapore, and on Aug 12, reported 1H22 distributable income of US$16.3 million, 7.2 per cent higher than 1H21.

UNITED Hampshire US Reit : ODBU 0% (UHReit) has begun negotiations on refinancing options for its short-term liabilities maturing in March 2023, and is confident of a successful outcome, said the real estate investment trust&rsquo s (Reit) manager in a bourse filing on Monday (Aug 22).

 

The announcement was in response to queries raised by the Singapore Exchange Securities Trading (SGX-ST) about UHReit&rsquo s &ldquo significant liabilities of S$309.2 million and cash and bank balance of only S$12.6 million&rdquo .

 

In particular, SGX-ST asked if the group&rsquo s current assets are adequate to meet its short-term liabilities of S$103.3 million and how it intends to fulfil its significant payment obligations in the next 12 months.

 

The Reit manager said the group&rsquo s current liabilities of S$103.3 million as at June 30, 2022 are mainly due to a reclassification of a term loan of S$91.5 million and revolving credit facility.

 

It says it has &ldquo a broad range of banking relationships with local and international banks&rdquo and has begun negotiations with both its existing as well as potential new lenders on refinancing options for its loan facilities well in advance of their maturity.

 

&ldquo Accordingly, the manager is confident that the outcome of the negotiations to refinance its loan facilities will be successful and will be completed prior to the maturity date,&rdquo said the announcement.

 

The Reit manager added that as at Jun 30, UHReit has a low aggregate leverage of 38 per cent and a healthy interest coverage ratio of 6.0 times in accordance with requirements under its loan facilities and 4.6 times in accordance with the Property Funds Appendix of the Collective Investment Schemes Code.

 

Apart from the ongoing refinancing exercise, UHReit is able to fulfil its payment obligations in the next 12 months as its business fundamentals are resilient and performing well, and it has sufficient cash and expects adequate cashflow from its operations to meet working capital needs.

 

On Jun 28, United Hampshire US Reit Management non-independent non-executive director David Goss acquired 250,000 units of United Hampshire US Reit (UHReit) : ODBU 0% at an average price of 60.9 US cents per unit. With a consideration of US$152,125, this increased his direct interest from 0.09 per cent per cent to 0.13 per cent. This closely followed his acquisition of 500,000 units, also at 60.9 US cents per unit, between Jun 20 and 22. With a career spanning 50 years, Goss has been the managing director of UOB Global Capital since 1998.

 

Recently, United Hampshire US Reit Management CEO Robert Schmitt, and CFO Gerard Yuen, provided Singapore investors with a comprehensive overview of the UHReit portfolio as part of the ongoing SIAS-SGX Corporate Connect Webinar series. UHReit is the first US grocery-anchored shopping centre and self-storage Reit to list in Singapore with a total property value of US$688.5 million as at Dec 31. This includes 20 grocery and necessity properties and four self-storage properties, located across 8 states, across the US east coast. UHReit maintains a conservative gearing ratio of 38.9 per cent, with 79.6 per cent of its borrowings on a fixed rate with no refinancing requirements until 2023. For the industry outlook, Schmitt cited a Green Street Strip Center Sector Update that found brick-and-mortar retail sales growth was 17 per cent higher in 2021 compared to pre-pandemic levels in 2019, as retailer interest for space remains strong. He also added that Q1 2022 was a record breaking first quarter for the self-storage industry and that self-storage occupancy remains at all-time highs driven by subdued vacates and sticky incremental demand in a Covid situation.

 

UOB Kay Hian analyst Jonathan Koh is keeping his &ldquo buy&rdquo recommendation on United Hampshire US REIT (UHREIT) after the REIT announced the acquisition of Upland Square Shopping Center on June 9.

 

Koh has also raised his target price on the REIT to 91 US cents ($1.26) from 88 US cents previously. The new target price represents an upside of 50.4% to the REIT&rsquo s current unit price of 60.5 US cents. It is also based on a cost of equity of 8.0% and terminal growth of 1.3%.

 

Further to his report, Koh has upped his distribution per unit (DPU) forecast for the FY2023 by 3% to include full-year contributions from the REIT&rsquo s new asset.

 

&ldquo UHREIT trades at [an] FY2023 distribution yield of 10.3%, which represents an attractive yield spread of 7.2% above the 10-year US government bond yield of 3.1%. It trades at P/NAV of 0.81x,&rdquo he writes in his June 24 report.

 

Upland Square, which is located in the county of Montgomery in Pennsylvania, was acquired for a consideration of US$85.7 million ($119.1 million).

 

The asset is said to help increase the REIT&rsquo s pro forma distribution per unit (DPU) by 2.13% to 6.23 US cents from 6.1 US cents previously.

 

Following the acquisition, UHREIT will expand its exposure to the state of Pennsylvania to 17.7% from 7.3% of base rental income. The acquisition will also increase the REIT&rsquo s portfolio by 6%. UHREIT&rsquo s portfolio weighted average lease expiry (WALE) will remain the same at 7.7 years.

 

The anchor tenant at United Hampshire US REIT is Giant Ahold Delhaize, a leading supermarket operator in the Mid-Atlantic region, notes Koh.

 

The shopping centre also has three dominant national off-price retailers, which are Burlington, Ross and TJ Maxx. Other key tenants include Petco (chain of stores for pet food and supplies), Ashley Furniture (home furnishings retailer) and Ulta Beauty Supplies (chain of beauty stores carrying cosmetics, fragrances, nail, bath and body products), the analyst adds.

 

In Koh&rsquo s view, yield-accretive acquisitions of grocery-anchored & necessity-based retail properties, as well as the stability of spending on necessity products and essential services are catalysts to UHREIT&rsquo s unit price.

UHREIT&rsquo s battered valuation translates into one of the highest distribution yields in the S-Reit universe. But the Reit manager &ndash and analysts &ndash believe this is &ldquo not justified&rdquo .

 

ROBERT Schmitt, chief executive officer of the manager of United Hampshire US Real Estate Investment Trust (UHREIT), is in a bit of a pickle.

 

Operationally, the Singapore-listed real estate investment trust (S-Reit) has remained resilient through the pandemic and performed better than expected.

 

For the full year ended December 2021, UHREIT posted distributable income (DI) of US$31.2 million, beating its initial public offering (IPO) forecast by 3 per cent.

 

FY2021 distribution per unit (DPU) inched up to US$0.061 &ndash a whisker above the forecast of US$0.0609 made prior to the pandemic.

 

Net property income (NPI) was also marginally higher than expected at US$41.9 million, exceeding its IPO forecast by 0.7 per cent.

 

The improvements were spurred on by UHREIT&rsquo s maiden acquisitions of 2 assets &ndash Colonial Square in Virginia and Penrose Plaza in Pennsylvania &ndash in November 2021. Together with a 3.7 per cent increase in its portfolio valuation as at end 2021, the acquisitions saw UHREIT&rsquo s total assets grow 15.9 per cent year on year to US$688.5 million.

 

For the first quarter of FY2022 ended March &ndash the first full quarter post the inaugural acquisitions &ndash DI rose 7.9 per cent compared to the corresponding period a year ago, with Q1 gross revenue up 20 per cent and NPI up 13.1 per cent.

 

Yet, investors are not biting.

 

UHREIT made its debut on the Singapore Exchange (SGX) in March 2020 &ndash at the peak of the Covid-19 pandemic, which saw a collapse in the wider market. And it has struggled to find its footing since then.

 

The counter opened at US$0.72 on March 12, 2020 &ndash a full 10 per cent below its IPO price of US$0.80.

 

A day later, then US President Donald Trump declared a state of emergency in the US over the coronavirus. By the end of its first trading month, units of UHREIT had fallen as low as US$0.47.

 

&ldquo Our timing was not ideal,&rdquo Schmitt said.

 

While it has clawed back some of its losses, UHREIT is still trading underwater. It closed at US$0.61 on June 10, 2022 &ndash some 24 per cent below its IPO price and 18 per cent below its book value, according to Bloomberg data.

 

Bad IPO timing aside, the real estate investment trust (Reit) also faces another problem: UHREIT&rsquo s portfolio mostly comprises strip shopping centres in the US &ndash an asset type that Singapore investors are largely unfamiliar with as they are scarcely found here.

 

Schmitt explains that the strip shopping centres in UHREIT&rsquo s portfolio are grocery-anchored and necessity-based retail properties located in the suburbs. Parking spaces typically stretch across the length of the single-storey buildings, providing convenience to consumers for in-store and curbside pickups.

 

&ldquo You probably don&rsquo t see them as much in Singapore,&rdquo Schmitt said. &ldquo The US is a suburban nation. (Around) 75 per cent of the population either lives in the suburbs or what are considered rural areas or more spread out. So these open-air strip centres are located throughout the suburbs where the housing is.&rdquo

 

&ldquo Because we are necessity-based, we are convenience-oriented, we are ecommerce-resistant, we' ve held up really well over the pandemic,&rdquo he added. &ldquo The sector is as strong as it ever has been (and) it&rsquo s in high demand coming out of the pandemic.&rdquo

 

As at end 2021, UHREIT&rsquo s portfolio comprised 20 of such strip shopping centres. It also owns 4 self-storage properties, which Schmitt describes as &ldquo 1 of the best performing sectors coming out of the Great Recession&rdquo .

 

He noted that trends such as working from home and suburban migration have benefitted the self-storage sector.

 

&ldquo People are trying to create more office space in their houses or create space for gymnasiums, so they need to declutter their homes,&rdquo Schmitt said. &ldquo And there' s a stickiness to self storage demand. Once you put stuff in these units, it stays there.&rdquo

 

While bullish on both the necessity retail and self-storage sectors, Schmitt said the Reit will focus on growing the former for now.

 

The primary reason for this, he explains, is that capital values of self-storage facilities are very high while cap rates are very low.

 

&ldquo It would be very difficult to make accretive acquisitions for good, stabilised, modern self-storage facilities,&rdquo he said.

 

The manager of UHREIT on June 9 announced the proposed acquisition of another grocery-anchored freehold asset, Upland Square Shopping Centre in Pennsylvania, at a purchase price of US$85.7 million.

 

The accretive acquisition is expected to lift the Reit&rsquo s pro forma DPU by 2.1 per cent to US$0.0623.

 

UHREIT&rsquo s portfolio committed occupancy will increase to 96.6 per cent post acquisition &ndash the highest level since its IPO &ndash while its portfolio value will rise 6 per cent to US$730.1 million.

 

The acquisition will be partially funded from net proceeds of the divestment of 2 of its 4 self-storage properties &ndash Elizabeth Self-Storage and Perth Amboy Self-Storage &ndash which were sold for a total of US$45.5 million.

 

&ldquo On the acquisition side, we absolutely are looking to grow,&rdquo Schmitt said. &ldquo We would like to get over a billion dollars in assets under management (AUM) as quickly as possible. That' s the first goal and we were not going to stop there.&rdquo

 

&ldquo We came to Singapore to grow. The investment demand is there, and I think if we can do more acquisitions, we' ll be able to generate more investor volume on the share price (and) be able to push the growth of this fund over time,&rdquo he added. &ldquo Our goal is to ultimately get to the size where we can get on an index and attract more institutional equity on our share price and our trading volume.&rdquo

 

Over the past year, units of UHREIT have fallen 17.6 per cent, with an annualised total return of negative 10 per cent.

 

Based on its last closing price of US$0.61 and DPU of US$0.061 for FY2021, UHREIT is trading at a distribution yield of 10 per cent &ndash one of the highest in the S-Reit universe.

 

&ldquo The distribution yield is not justified and is higher than most of the other US property Reits,&rdquo Schmitt said. &ldquo We need to continue to educate the consumer that the distribution yield is out of line with the resiliency and risk reward structure of our portfolio.&rdquo

 

&ldquo Singaporeans don' t see these types of assets day in and day out so it' s hard to kind of wrap their head around what our offering is. So I think we need to do a better job educating and getting the word out&hellip (and) telling the story,&rdquo he added.

 

The way Schmitt describes it, UHREIT&rsquo s portfolio of properties offers essential goods and services that consumers will need to purchase regardless of the state of the economy.

 

&ldquo We' re in uncertain times with inflation, with a war in the Ukraine, rising short-term rates, supply chain disruptions,&rdquo he said. &ldquo Despite all that, the consumer needs these goods on a daily basis.&rdquo

 

Already, UHREIT&rsquo s unique resilient offering has caught the eye of some market watchers. RHB, for example, has identified UHREIT as one of the top 20 &ldquo jewels&rdquo for 2022 among small cap companies listed in Singapore.

 

&ldquo The Reit, although classified as a retail Reit, mainly caters to the suburban grocery and necessity segment, which is less impacted by rising e-commerce and also serves as micro-fulfilment centres of leading retailers' omni-channel platforms,&rdquo said RHB analyst Vijay Natarajan, describing UHREIT as &ldquo misunderstood&rdquo .

 

&ldquo We believe the Reit&rsquo s high 10 per cent yield is mainly due to negative investor sentiment surrounding the retail sector but its portfolio of grocery and necessity-anchored assets are, in our view, immune from the Covid-19 impact,&rdquo he added. &ldquo While liquidity and its relatively smaller size are possible reasons for high yield spreads, we believe the yield spread of more than 700 basis points over the US 10-year Treasury yield is highly attractive, and we see room for yield compression.&rdquo

United Hampshire US REIT is acquiring a new asset for US$85.7 million, 0.3% off an independent valuation.

 

The asset, the Upland Square Shopping Centre, will help increase its pro forma distribution per unit by 2.13% from 6.23 US cents from 6.1 US cents, and to also grow its portfolio value by 6% to US$730.1 million.

 

&ldquo Given its larger distributable income base, Upland Square is set to substantially enhance UHREIT&rsquo s income visibility and resilience,&rdquo says Robert Schmitt, CEO of the REIT&rsquo s manager.

 

This acquisition is the second for UHREIT in Pennsylvania, further extending its footprint in the affluent Eastern seaboard. The REIT plans to pay for this acquisition using proceeds from a recent divestment, plus internal funds and a loan.

 

The freehold property has a net lettable area of approximately 400,674 sq ft, with a committed occupancy rate of 100% and a long forward committed WALE of 6.3 years.

 

The property has 35 tenants, including the anchor, Giant by Ahold Delhaize, a leading supermarket operator in the Mid-Atlantic region of the US.

 

The acquisition will lift the committed occupancy of UHREIT&rsquo s portfolio to 96.6%, its highest since its IPO in March 2020.

 

Post acquisition, UHREIT&rsquo s contribution from its top 10 tenants will reduce from the current 60.2% to 56.8%, providing increased tenant diversification and stabilising the portfolio&rsquo s income.

 

The enlarged portfolio will also benefit from lower lease expiries in 2023 and 2024, with less than 10% of leases due for renewal every year from 2023 to 2026.

 

There is minimal impact on portfolio WALE, which will decrease marginally from 7.8 years to 7.7 years.

 

UNITED Hampshire US Real Estate Investment Trust (UHReit) on Thursday (May 12) reported a 7.9 per cent increase in its distributable income to US$8.1 million for the first quarter ended Mar 31, 2022, compared with the US$7.6 million in the corresponding period last year.

 

UHReit, which focuses on grocery-anchored shopping centres and self-storage properties in the US, said the acquisitions of Colonial Square and Penrose Plaza in November 2021 contributed positively to the latest quarter&rsquo s distributable income.

 

Gross revenue rose 20 per cent year on year to US$16.2 million, while net property income was up 13.1 per cent to US$11.4 million.

 

Chief executive of UHReit&rsquo s manager, Robert Schmitt, noted the &ldquo robust leasing momentum&rdquo at its existing properties. In the first quarter, it executed 10 new and renewal leases totalling about 79,928 square feet.

 

Occupancy levels at its grocery and necessity properties improved further to 96.4 per cent as at Mar 31 this year, the highest since UHReit&rsquo s initial public offering in March 2020, and up from 95.3 per cent at the end of last year.

 

Schmitt said the cycle-agnostic tenants providing essential services have continued to benefit from adopting omnichannel strategies. &ldquo We have also observed that many retailers with a physical store presence have experienced stronger online sales as these networks make returns or exchanges easier for consumers.&rdquo

 

He added that UHReit&rsquo s manager will continue to work with its tenants to leverage this &ldquo renewed balance&rdquo between online and physical store sales.

 

UNITED Hampshire US Reit has agreed to revise the sale consideration of its 2 self-storage properties - Elizabeth and Perth Amboy - down to US$45.5 million from US$49 million previously. 

 

This comes after the due diligence period for the proposed divestment lapsed following a number of delays, and upon taking into account an independent valuation of US$44.4 million for the asset. 

 

In an update on Tuesday (Apr 19), the Reit manager said its revised consideration are 2.5 per cent above the properties&rsquo latest valuation and 17.7 per cent above their book value of US$38.7 million. 

 

An escrowed top-up amount of US$4.7 million has been fully depleted. The revised consideration is 4.9 per cent above the purchase price of US$43.4 million, inclusive of this top-up. 

 

The Reit manager estimates net proceeds of US$44.1 million after deducting transaction-related expenses. This equates to a cumulative divestment gain over book value of the properties of about US$5.4 million, it said. 

 

The manager also added that it believes the proposed divestment will still enhance value for unitholders as well as strengthen the Reit&rsquo s balance sheet, while allowing it to realise capital gains from the divested properties. 

 

&ldquo While the initial sale consideration carried a more significant premium over book value, the revised sale consideration remains attractive, especially in light of the recent spike in market volatility due to uncertainties caused by higher interest rates, high inflation and the conflict in Ukraine since the entry into the PSA (purchase and sale agreement) on Feb 23, 2022,&rdquo said the manager. 

 

The divestment is expected to complete in Q2 of 2022. 

 

For illustrative purposes, distribution per unit (DPU) for the fiscal year ended Dec 31, 2021 would have been 5.5 US cents instead of 6.1 US cents had the divestment been completed on Jan 1, 2021. 

 

The decrease in pro-forma DPU comprises 0.03 US cent per unit from the net property income of the 2 self-storage properties, as well as 0.57 US cent per unit from the top-up of the properties and stipulated damages for the Perth Amboy self-storage property.