United Hampshire US REIT - UOB Kay Hian 2022-11-10: 3Q22 Strip Centres At The Forefront Of Retail Recovery

• Strip centres are leading the recovery in retail real estate with strong net absorption for eight consecutive quarters. United Hampshire US REIT’s strip centres are also benefitting with occupancy improving 0.5ppt q-o-q to 96.7% in 3Q22 and shopper traffic trending higher during summer. Its strip centres cater to necessity spending and have WALE of 7.6 years.
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United Hampshire US REIT (UHU) reported its 3Q22 operational updates.

• Continuing to grow via acquisition. United Hampshire US REIT (SGX:ODBU)'s gross revenue and NPI grew 24.7% and 15.2% y-o-y respectively for 3Q22, driven by its third and largest acquisition of Upland Square, which was completed on 28 Jul 22 (about two months of contributions).
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• Self-storage properties: Rents on an upward trajectory. Occupancies at self-storage properties Carteret and Millburn were both 93.9% as of Sep 22. Average quarterly net rent rate for Carteret and Millburn increased 26% and 32% y-o-y respectively to US$23.00 and US$25.50 psf. Increases in rents for existing customers will keep rents elevated.
• Sheltered from rising cost of utilities. Majority of United Hampshire US REIT’s leases for grocery & necessity retail properties are triple net, whereby tenants have to reimburse United Hampshire US REIT for their pro-rata share of operating expenses, such as property taxes, insurance and common area maintenance. Thus, United Hampshire US REIT is not unduly affected by higher cost of utilities.
• Prudent capital management. Aggregate leverage has increased 4.1ppt q-o-q to 42.1% in 3Q22 due to the acquisition of Upland Square. Its weighted average debt maturity is 2.1 years. Cost of debt was stable at 3.05% in 9M22. Interest coverage ratio is healthy at 5.6x. 82% of United Hampshire US REIT's borrowings are hedged to fixed rates.
• Management estimated that every 50bp increase in LIBOR/SOFR reduces United Hampshire US REIT's DPU by 0.053 Ucents, which is equivalent to 0.89% of trailing 12-month DPU.
• Negative impact from refinancing. United Hampshire US REIT has borrowings of US$100m due for refinancing in Mar 23. Management has been negotiating with existing and potential new lenders. We estimate that weighted cost of debts would increase to 4.55% assuming the loans are refinanced at an interest rate of 5.7%.

Strip centres at the forefront of retail recovery.

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Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-11-10 SGinvestors.io

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