UOB Kay Hian analyst Jonathan Koh is keeping his “buy” recommendation on United Hampshire US REIT (UHREIT) after the REIT announced the acquisition of Upland Square Shopping Center on June 9.
Koh has also raised his target price on the REIT to 91 US cents ($1.26) from 88 US cents previously. The new target price represents an upside of 50.4% to the REIT’s current unit price of 60.5 US cents. It is also based on a cost of equity of 8.0% and terminal growth of 1.3%.
Further to his report, Koh has upped his distribution per unit (DPU) forecast for the FY2023 by 3% to include full-year contributions from the REIT’s new asset.
“UHREIT trades at [an] FY2023 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,” he writes in his June 24 report.
Upland Square, which is located in the county of Montgomery in Pennsylvania, was acquired for a consideration of US$85.7 million ($119.1 million).
The asset is said to help increase the REIT’s pro forma distribution per unit (DPU) by 2.13% to 6.23 US cents from 6.1 US cents previously.
Following the acquisition, UHREIT will expand its exposure to the state of Pennsylvania to 17.7% from 7.3% of base rental income. The acquisition will also increase the REIT’s portfolio by 6%. UHREIT’s portfolio weighted average lease expiry (WALE) will remain the same at 7.7 years.
The anchor tenant at United Hampshire US REIT is Giant Ahold Delhaize, a leading supermarket operator in the Mid-Atlantic region, notes Koh.
The shopping centre also has three dominant national off-price retailers, which are 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), the analyst adds.
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In Koh’s view, yield-accretive acquisitions of grocery-anchored & necessity-based retail properties, as well as the stability of spending on necessity products and essential services are catalysts to UHREIT’s unit price.
As at 4.53pm, units in UHREIT are trading 0.5 cent higher or 0.83% up at 60.5 US cents, or an FY2022 P/B of 0.8x and DPU yield of 10.7%.
