The past few years should have been bleak for United Hampshire US REIT ODBU (UHREIT). The World Health Organization declared Covid-19 a pandemic on the same day the REIT was listed on the Singapore Exchange S68 in March 2020 and consumers turned en masse to online shopping, threatening bricks-and-mortar stores.
Instead, UHREIT, which focuses on necessity retail real estate, has increased its assets under management (AUM) by over 30%, to US$763.4 million ($1 billion) from US$584.6 million. Gerard Yuen, its manager’s CEO, credits the REIT’s odds-defying growth to its strategic choice of retail real estate: grocery-anchored strip centres in the US and its proactive portfolio management strategy.
Grocery-anchored strip centres are shops with grocery stores or supermarkets as their anchor tenants. Yuen says: “Along with the grocery store, our tenants are home improvement stores, quick and casual dining restaurants, hair and nail salons, pet stores and more. These stores provide non-discretionary essential services, where people go for their daily needs and you get steady business daily.”
“Our strip centres are single-storey and open-air. This, combined with the fact that most of our tenants are classified as essential services, meant that none of our strip centres needed to close even during the pandemic-enforced lockdown period. Indeed, the supermarkets performed much better during the pandemic.”
The REIT also owns two self-storage properties, which are popular in the country. “Many US consumers like holding onto their treasured possessions, from their children’s old baby clothes or furniture, to store their winter clothes during the summer and summer clothes during the winter and so on. They need more space to store these items, so the self-storage sector has been thriving.”
Equally important, the REIT invests in properties in suburbs along the East Coast in the US. Yuen says: “Suburbs are where most Americans live and the East Coast is among the country’s most affluent and populated parts. We also have one property in Florida, which is doing very well too.”
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It is noteworthy that despite high interest rates and challenges in the US office sector from the increase in hybrid work-from-home arrangements, UHREIT’s properties have benefitted from being in the suburbs where people live and now work. As of Dec 31, 2023, UHREIT’s portfolio valuation increased 4.7% on a like-for-like basis compared to the previous year, which Yuen attributes to the strength and resiliency of its portfolio of properties.
The ABCs of growth
Even as the REIT has benefited from its tenants’ adaptability post-pandemic, with physical retailers enabling customers to buy online and collect in-store, cutting shipping costs, among other selling points, to maintain and improve their business in the face of e-commerce, it has made other canny moves: acquisitions, better use of its properties’ land and capital recycling.
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UHREIT completed three major acquisitions: Upland Square, Penrose Plaza in Pennsylvania and Colonial Square in Virginia. All three properties are dominant, grocery-anchored centres in their respective areas. These acquisitions have enhanced the REIT’s tenant diversification and income resilience and increased its total AUM.
The REIT has conducted new development projects on excess land within its properties. One project, in particular, capitalised on an expansive, unused 63,000 sq ft plot of land to attract Academy Sports + Outdoors, a Fortune 500 company that is among the largest sports retailers in the US, as a long-term tenant.
Yuen says: “We already owned the land, so we didn’t have to buy it. We only had to construct the building, which didn’t cost much as it is a single-storey building. We signed a 15-year lease at a good rental rate, had the building up and running in less than a year and have been getting a good return from it.”
The REIT recycles its capital to fund growth plans. “We’ve made three divestments, all at healthy premiums to their valuation. That’s part of our financing strategy: actively recycle capital by divesting the assets that we feel we have maximised the value of and deploying the funds raised into future acquisitions.”
The REIT currently has 20 grocery-anchored and two self-storage assets spanning 3.8 million sq ft and a committed occupancy rate of 95.7% as of March 31. With its largely triple net leases, tenants are responsible for their pro-rata share of real estate taxes, property and common area operating expenses and building insurance, insulating the REIT from rising utility and other costs.
Yuen adds that the REIT’s success to date partly stems from its proactive approach to business. “We sometimes renew leases several years before their expiry to lock in a particularly strong tenant. For example, we feel comforted knowing that a large, reputable tenant like Walmart will be with us for the next five or 10 years.”
“We are also proactive when it comes to managing debt. When one of our loans was coming due, we decided to do a broader refinancing, including loans which were only due in a subsequent year. This allowed us to extend our overall debt maturity and, importantly, avoid the refinancing pressure others may face in the current high interest rate environment.”
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Financial foresight
Yuen adds that his two decades in finance before joining the REIT instilled a strong sense of financial foresight in him. “My background is in investment banking, which tends to be very fast-paced. You’re always looking ahead and we as a management team decided early on that leaving refinancing to the last minute is not good because you may be at the mercy of market conditions then.”
The REIT’s collaborative team and sponsor support are other key contributors to its growth. He continues: “We have half of our team in the US and the other half in Singapore, which means regular online meetings either early in the morning or after dinner. We have to be very aligned, efficient and collaborative to make it work.”
The REIT has also tapped on the expertise of its sponsors: United Overseas Bank U11 ’s global asset management subsidiary, UOB Global Capital and The Hampshire Companies, a real estate firm and real estate investment manager with over 60 years of hands-on experience in the US. It engages the latter to handle its day-to-day property and asset management.
Moreover, UOB Global Capital’s managing director, David Goss and The Hampshire Companies’ president and CEO, James E. Hanson II, sit on the REIT’s board. Yuen adds: “They have provided guidance and shared their strong networks with us. As we move forward, these advantages, alongside our own strategies and dedicated team, will propel us to ever greater heights.”
About United Hampshire US REIT (UHREIT)
Listed on the Main Board of the Singapore Exchange on March 12, 2020, UHREIT is a Singapore real estate investment trust established with the principal investment strategy of investing in a diversified portfolio of stabilised income-producing (i) grocery-anchored and necessity-based retail properties (“Grocery and Necessity Properties”) and (ii) modern, climate-controlled self-storage facilities (“Self-Storage Properties”), located in the US.
UHREIT targets tenants who are resilient to the impact of e-commerce, including, but not limited to, restaurants, home improvement stores, fitness centres, warehouse clubs and other uses with strong omnichannel platforms.
UHREIT’s portfolio comprises 20 predominantly freehold Grocery and Necessity Properties and two Self-Storage Properties, primarily concentrated on the East Coast of the US, with a carrying value of approximately US$763.4 million and an aggregate net lettable area (“NLA”) of approximately 3.8 million sq ft. The company website is: https://www.uhreit.com/
About kopi-C: The Company Brew
kopi-C is a regular column by SGX Research in collaboration with Beansprout (https://growbeansprout.com), a MAS-licensed investment advisory platform that features C-level executives of leading companies listed on SGX. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations
