2H23: Resilient And Attractive Yield From Strip Centres With Long WALE
UHU’s strip centres in suburban locations have outperformed other asset classes due to entrenched hybrid work arrangements. They cater to necessity spending and have a long WALE of 7.1 years. Portfolio valuation increased 4.7%, reflecting higher occupancies and rising rents for its strip centres. UHU provides a resilient and attractive 2024 distribution yield of 10.2% and trades at P/NAV of 0.62x. Maintain BUY. Target price: US$0.68.
RESULTS
• United Hampshire US REIT (UHU) reported DPU of 2.14 US cents for 2H23 (-27.9% yoy), which is slightly above our forecast. The decline was caused by: a) a change in policy as the manager elected to receive management fees of S$1.5m fully in cash, and b) UHU retaining US$1.3m with payout ratio at 90.6% for 2H23.
• Growing organically. Gross revenue and NPI grew 1.5% and 1.7% yoy respectively for 2H23 due to organic growth from its existing properties through new leases and rental escalation. The new Academy Sports + Outdoors store at St Lucie West commenced operations in Nov 23, ahead of the peak year-end festive shopping season.
• Resiliency from long WALE. UHU signed six leases totalling 100,392sf in 4Q23 (two new leases and four renewals). It achieved positive low single-digit rental reversion. It has maintained high tenant retention ratio of 92% since its IPO. Committed occupancy inched higher by 0.5ppt yoy and 0.2ppt qoq to 97.4% in 4Q23. UHU’s grocery and necessity properties have a long WALE of 7.1 years. There is minimal roll-over risk with leases expiring in 2024 accounting for only 2.2% of base rental income.
• Resiliency from essential services. As of Dec 23, 61.6% of UHU’s base rental income was derived from tenants providing essential services. Its triple net leases require tenants to reimburse the landlord for property taxes, insurance and maintenance for common areas, which shelter UHU from the negative impact of higher inflation. Leases for anchor tenants typically have built-in rental escalation of 5-10% for every 5-10 years. Tenants typically do not have early termination rights.
• Self-storage properties: Rents on an upward trajectory. Occupancies at self-storage properties Carteret and Millburn were 91.3% and 92.2% respectively as of Dec 23.
