HSBC Global Research is keeping its “buy” recommendation on United Hampshire US REIT (UHU) with an unchanged target price of 85 US cents.

This comes on the back of the REIT’s maiden acquisition of two grocery anchored assets for US$78.2 million – Penrose Plaza in Philadelphia for US$52.0 million and Colonial Square in Virginia for US$26.25 million. Both properties imply an NPI yield of 6.7% and 6.1% respectively.

See: United Hampshire US REIT acquires two grocery assets for US$78.25 mil; launches private placement to raise US$30 mil

Lead analyst Utkarsh Rastogi says, “This marks UHU’s first set of acquisitions since being listed in March 2020 and also marks its entry into two new states of Philadelphia and Virginia. It remains consistent with UHU’s existing presence on the east coast of the US.”

Penrose Plaza has a committed occupancy of 94.1% with an NLA of 258,494 sf and 27 tenants, including ShopRite as one of the anchor tenants. Colonial Square has a committed occupancy of 99.1% with an NLA of 168,326 sf and has 20 tenants, including Publix as one of the anchor tenants.

The consideration for both properties are to be funded by a mix of debt and equity. The total acquisition cost of US$82.0 million comprises purchase consideration of US$78.2 million; acquisition fee of US$0.8 million; and transaction related fees of US$0.3 million.

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Along with the announcement of the acquisition, UHU concurrently launched an equity fund raising to raise proceeds of not less than US$30 million at a price of 62 to 64 US cents per unit. The acquisition fees will be payable entirely in units while the cost of debt to fund the acquisition is expected to be around 2.85%, which is in line with the current weighted average cost of debt for UHU.

“We expect the acquisition to be completed by end-November 2021. Thus, we increase our DPU estimates for FY2022-2023 by 1% each while our DPU for FY2021 is largely unchanged. Given the use of debt for acquisitions, we also expect UHU’s aggregate leverage to increase to about 40% from 36.4% as at end-June 2021,” says Rastogi, who has estimate for UHU’s DPU to come in at 6.3 US cents for FY2021, 6.6 US cents for FY2022 and 6.9 US cents for FY2023.

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Overall, the analyst is positive on the acquisitions. “At a purchase price of US$200 psf and US$160 psf, respectively, they appear fairly priced compared to UHU’s existing portfolio. The increase in UHU’s market cap through the placement will also help to increase its trading liquidity.”

As at 2.40pm, units in UHU are trading at 68 US cents.

Photo: United Hampshire US REIT