Scaling Up In Resilient Grocery-anchored Strip Centres With Long WALE

Analysts: Jonathan Koh, CFA  

  • United Hampshire US REIT (UHU) has proposed to acquire two dominant grocery-anchored freehold strip centres – Penrose Plaza in Philadelphia, Pennsylvania and Colonial Square, in Richmond, Virginia. This is UHU’s first entry into Pennsylvania and Virginia and will expand its footprint along the Eastern seaboard. The purchase price is US$78.3m (Penrose Plaza: US$52.0m, Colonial Square: US$26.3m), which is 3.9% below independent valuation of US$81.5m.
  • Penrose Plaza is anchored by Publix (15-year lease expiring in 2031), one of the largest grocery chains in the US, while Colonial Square is anchored by ShopRite (20-year lease expiring in 2038), a leading supermarket brand. Other tenants include dd’s Discount (discount retailer), Dollar Tree (discount variety store), Citi Trends (discount retailer), Locke Supply (home improvement), Wells Fargo (bank) and General Dollar (discount retailer). UHU’s portfolio value will expand 13.3% to US$665.4m. The enlarged portfolio’s WALE by base rental income will increase slightly to 8.1 years. Committed occupancy is maintained at 94.8%. The acquisition will improve diversification with contributions from the top 10 tenants reduced from the current 66.2% to 61.0% post-acquisition.
  • The proposed acquisition is expected to be DPU accretive. It will be funded by a combination of bank borrowings and proceeds from a proposed private placement to institutional and other investors.