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UOB Kay Hian initiates United Hampshire US REIT at 'buy' with TP of 92 US cents

Felicia Tan
Felicia Tan • 3 min read
UOB Kay Hian initiates United Hampshire US REIT at 'buy' with TP of 92 US cents
The positive outlook on the REIT is due to its portfolio of grocery-anchored and necessity-based properties, say UOB KH's analysts
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UOB Kay Hian has started coverage on United Hampshire US REIT at “buy” with a target price of 92 US cents.

This, say analysts Jonathan Koh and Loke Peihao, is due to the REIT’s portfolio of grocery-anchored and necessity-based properties that cater to essential basic needs.

“United Hampshire US REIT invests in income-producing real estate that is used primarily for grocery and necessity retail and self-storage purposes in the US,” note Koh and Loke.

“Its initial portfolio consisted of 18 grocery and necessity retail properties or 85.8% of its portfolio valuation and four self-storage properties or 14.2% of its portfolio valuation with an aggregate net lettable area (NLA) of 3.2 metres sqf spread across the East Coast with an appraised value of US$599.2 million ($797.0 million),” they add.

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As such, the REIT’s portfolio is deemed as defensive and e-commerce resistant due to prohibitive last-mile logistic costs.

“United Hampshire US REIT’s neighbourhood and community strip centres are often anchored by a supermarket that primarily caters to necessity consumption, which is less sensitive to economic cycles,” they say.

In addition, over 70% of the REIT’s base rental income is derived from tenants engaged in businesses that are deemed essential. Its strip centres remained open during the recent lockdown and all of its tenants have been open for business since September.

Its defensive strength, add Koh and Loke, is further reinforced by blue-chip tenants and a long weighted average lease expiry (WALE) of 8.4 years, providing income stability.

The 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 and Home Depot.

The REIT’s self-storage space is also benefitting from an outflow of population from New York City.

SEE: United Hampshire US REIT reports distributable income of US$7.4 million for 3QFY20

“Demand for self-storage space is growing due to an outflow of population… to suburban areas in New Jersey and residents have to declutter their homes to create space for their home offices,” they say.

On this Koh and Loke have estimated 2021F distribution per unit (DPU) of 6.1 US cents.

“United Hampshire US REIT trades at a distribution yield of 10.7% for 2021F representing an attractive yield spread of 9.8% above the 10-year US government bond yield of 0.9%... Our target price is based on the dividend discount model (DDM) where cost of equity (COE) is 7.0% and terminal growth is 0.5%,” they add.

As at 3.52pm, shares in United Hampshire US REIT are trading 3.5 US cents higher or 6.0% up at 61.5 US cents.

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