Building Scale Brick By Brick
The acquisition of Upland Square is in line with UHU’s focus to expand its portfolio of
grocery-anchored and necessity-based retail properties along the Eastern Seaboard.
Upland Square’s key tenants include Ahold Delhaize, Burlington and TJ Maxx. The
acquisition provides attractive NPI yield of 6.5% and is accretive to pro forma 2021 DPU
by 2.1%. UHU provides compelling 2023 distribution yield of 10.3% and trades at a 19%
discount to NAV per unit of US$0.75. Maintain BUY. Target price: US$0.91.
WHAT’S NEW
• United Hampshire US REIT (UHU) has entered into a sale and purchase agreement to
acquire Upland Square Shopping Center in the County of Montgomery (third highest
populous county), Pennsylvania for US$85.7m.
• Expand presence in Pennsylvania. UHU continues to expand its presence along the
Eastern Seaboard. It currently owns one grocery-anchored and necessity-based retail
property in Pennsylvania, namely Penrose Plaza. The acquisition of Upland Square
Shopping Center expands UHU’s exposure to the state of Pennsylvania from 7.3% to 17.7%
of base rental income. The acquisition increases the size of UHU’s portfolio by 6%. Portfolio
WALE remains stable at 7.7 years.
• Stable rental income underpinned by quality tenants. The anchor tenant at Upland
Square Shopping Center is Giant by Ahold Delhaize, a leading supermarket operator in the
Mid-Atlantic region. It has three dominant national off-price retailers, namely 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).
STOCK IMPACT
• Recycling capital to higher-yielding grocery-anchored retail properties. Upland Square
Shopping Center provides NPI yield of 6.5%. The acquisition will be funded by an existing
mortgage loan of US$43m and net proceeds from the divestment of Elizabeth and Perth
Amboy Self-Storage properties of US$44m. Management estimated that the acquisition
increases pro forma 2021 DPU by 2.1% to 6.23 US cents after factoring in the higher cost of
mortgage loan and divestment of its two self-storage properties.
EARNINGS REVISION/RISK
• We raise our 2023 DPU forecast by 3% due to full-year contributions from Upland Square
Shopping Center.
VALUATION/RECOMMENDATION
• Enticing and irresistible yield spread. UHU trades at 2023 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.
• Maintain BUY. Our target price of US$0.91 is based on the dividend discount model (DDM)
(cost of equity: 8.0%, terminal growth: 1.3%).
SHARE PRICE CATALYST
• Stability of spending on necessity products and essential services.
• Yield-accretive acquisitions of grocery-anchored & necessity-based retail properties.